Updated on 08.06.13

Reader Mailbag: Reaching Out

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. Secured credit card?
2. Contacting credit card companies
3. Concerned about Mom
4. Time to switch cars?
5. Mint or Thrive?
6. Consolidate now or later?
7. Re-fi with PMI
8. Building credit (or not)
9. Using a Roth for savings
10. Consolidating public loans

If you want to say something but don’t think you have the words to say it right, just push through anyway. You’re far better off stumbling over a few words with the sincerity shining through than just choosing to keep your mouth shut and not letting the other person know.

The above was written for someone specific. Hopefully, it’ll help you, too.

Q1: Secured credit card?
Last year my husband’s credit card was cancelled for late payments. It had been at least 6 months since we were late on a payment, and that was because he was injured and couldn’t work for 3 months. He had had that card for several years with an excellent payment record but it transferred ownership (e.g., from Paypal to Washington Mutual to Chase) and we think Chase just dumped him because he had a low limit ($1,000).

Anyway, his credit is now in the toilet. We will want to sell our current home in the next few years and buy a better place. Would it be worth it to get him one of those secured credit cards in order to improve his credit? And are there any that won’t penalize us for paying the balance in full each month? I’d appreciate it if you’d steer us in the right direction.
– Lisa

Most secured credit cards I’m familiar with allow you to pay the full balance each month penalty-free.

A secured credit card works just like a regular credit card except that you have to pay a security deposit when you open the card. This is to protect the bank, because as a person with low credit, you’re a pretty high risk of just not paying your bills at all.

As for which specific card to choose, that’s really hard to say without more information about your specific situation. My suggestion would be to search for one yourself, perhaps starting with the financial institution you trust the most.

Q2: Contacting credit card companies
My husband lost his job at the beginning of 2010. With not much of an income coming in and struggling to keep food on the table and electricity on etc, we stopped paying on our credit cards in an effort to help have a little more to work with through the months. Looking at things now, I’m sure stopping payments altogether was probably NOT the best solution but they seemed like the least of our worries. When they called, we did not answer. That too I know is not a wise decision, but without an answer on how they could have payment, I just didn’t know what to say. My husband will be going back to work very soon and will be making a significant amount more than what we are bringing in now. I want to make things right and pay the credit card companies but I don’t know where to begin! We have 4 cards. One through Chase, one through Capital One, and two store cards who go through HSBC and GEMoney Bank. Over the few months we have received letters saying if we pay now they’ll let us pay only XX amount or call to set up a payment arrangement and we’ll work with you…but we didn’t call because we didn’t have anything to give. All of these had expiration dates. The latest letter we got from one company says to pay the entire outstanding balance to avoid additional collection efforts. If we don’t they will charge off the account and the debt may be sold to a collection agency. Are we past the point of them working with us?

– Shelby

Not necessarily. The best thing you can do is simply contact these companies as soon as you possibly can to work out a payment arrangement that works for both of you.

For the most part, those letters were an attempt to get your attention and get some sort of payment plan worked out, which is the resolution they would prefer in comparison to selling your debt for pennies to a collection agency. They’d rather collect 50% of the debt from you than 2% of it from a collection agency.

The sooner you deal with this, though, the better in terms of your credit history. The longer you wait, the greater the negative impact on your credit report and the worse your credit rating will be.

Q3: Concerned about Mom
I’m a college graduate with a fairly secure job living in a reasonably priced city and although I do have significant credit and student loan debt as well as a car loan, my combined income is enough to allow me to live comfortably, contribute to a retirement fund, 403b, and make major payments toward this debt each month. My husband and I also have a comfortable emergency savings, and home savings fund we contribute to monthly. While I know there is more I could personally do to get my debt paid off faster, I’m more concerned with my mother’s finances.

For most of her life, she’s worked sporadically at odd part time jobs in between pursuing a freelance art career and raising a family. She was largely financially dependent on a long term boyfriend until three years ago when they separated. Since then, I’ve taken on bailing her out of financial situations from minor–the phone is being turned off–to major–the furnace needs to be replaced. Needless to say, bailing her out has not been added to my long term financial plan, or my monthly budget, so often these bailouts come at my expense. She’s approaching sixty, and with her work history I’m sure that she won’t receive much in the way of retirement or social security funds, and I worry about her financial outlook in the future. As it stands, my husband and I would more than likely have to foot the bill if there were serious medical or hospice care needs in the future. While I know I should start saving for this inevitability is there anything now that I can do to help mitigate these costs? I had considered buying her a savings bond for Christmas, but I’m not sure if that would be the most cost effective way to invest money towards her future.
– Angel

Right now, you and your husband need to sit down and decide whether you’re going to be supporting her for the rest of her life. That’s an intensely personal decision – taking care of her will hurt your long-term financial future, but not taking care of her means pushing your mom into a scary financial future.

I think there are valid reasons to do both and I don’t think either one is morally superior to the other, mostly because of the idea that if you spend the next ten years getting your own financial house as strong as possible without concern for your mom, you can then step in to make her final years go quite well.

The key here is that you’re honest with your husband and that you’re both committed to doing things together in this regard. I don’t get the impression that your mother will choose to take care of her own finances by herself, so it’s going to be up to you to make this decision.

Q4: Time to switch cars?
My husband and I just moved from DC to Maryland and need to change our vehicle registration. I have a 1995 Acura Integra in pretty poor condition with 200,000 miles that I own outright. It runs great, but it is likely to not pass MD inspection and needs $1000-$2000 in repairs. We only drive it once a week and average about 4000 miles per year. We have about $3000 saved up for a down payment on a car and could supplement with savings if needed. Is it time to donate and get a new car?

– Laura

Considering that you could get a better car that would pass Maryland inspection for that $3,000, it’s probably a good move to upgrade your car at this point.

You may want to consider donating the car to an organization in an area where the car will be drivable – in other words, donate it to a charitable group that can use it outside of Maryland.

Of course, I’m assuming you’ve considered living without the car and judged it to not be a good idea. If you only drive it once a week, I’d strongly consider the carless option before discarding it.

Q5: Mint or Thrive?
Just wondering if you could compare these two sites . . . benefits, downfalls, who can benefit from each one, etc.?

– Amy

I do not use Mint or Thrive for one simple reason: the aggregation of all of my personal finance information in the hands of a single company, even one with a stellar record for security, isn’t worth the risk to me.

I’m not worried about computer error. What worries me is human error and/or poor ethics. All it takes is one individual human slipup or one person with bent ethics and access to Mint or Thrive servers to cause your information to be routed elsewhere. That makes me nervous.

I’m okay with online banking because the bank already has my information. I was okay using Wesabe before they went defunct because they didn’t request my account information. Mint and Thrive? I just can’t see how using them is worth that risk.

Q6: Consolidate now or later?
I’ve got two semesters left in my Masters degree in Music, and I’m pretty certain I’m coming up close to 100k (if I did my debt snowball correctly). Some are from private lenders, but most are government loans. My main question is this: does it make sense to consolidate loans while I’m still in school (i.e. – still taking out more loans), or should I just wait until I’m done with school? Another option would be to consolidate the non-government loans since I should not have to take out any more private loans, what do you think?

As far as other financial avenues of my life, my only other debt is my car (~$2160, at ~$180/mo.) which will be paid off in a year. I’m contributing regularly to an Emergency Fund (currently $20/mo). I have around $100 now, and I’m aiming for $1000 as my first goal. I work at least 20 hours a week making $9.50/$10.00 an hour depending on which job it is. I’m getting ready to sell my old instrument which could bring in $2500-3k.

My plan is to pay off the car, then put the remaining money toward the EF, and contribute to that monthly (~3 mos.) until it’s at $1k.

After that I’d like to start paying off some of my smaller private loans, which is another thing I’m not sure about how to do. Here’s an example: I have a private loan for $500 at 12.523% interest (this is the highest rate on my student loans, most are 6-9%). It’s accruing interest now, but payments are deferred. Would it be kosher for me to call the loan company and offer to pay the principal (and accrued interest?) outright to get rid of the loan? I would think that they would rather me pay them what I currently owe them now than for them to get a little at a time over the next 10-20 years, but then again I don’t know if they’d go for that.
– Phil

First of all, generally you cannot consolidate private loans that aren’t backed by the government with loans that are backed by the government. Thus, you’re going to have to deal with the private loans separately from any consolidation.

Your first step would be to make a list of all of your private loans, then a separate list of all of your public loans that are eligible for consolidation – check this list. I would then see if I could find a consolidation package that would reduce the interest rate of all of your public loans – if you can’t, then just consolidate the ones that result in a lowered rate.

After that, start knocking off the private loans, starting with the highest interest rate loans. Don’t be afraid to knock off the loans early and don’t be afraid to completely eliminate them if you have the resources to do so.

Q7: Re-fi with PMI
We currently have a 30-year fixed mortgage with a rate of 5.25% through our credit union. Our original loan amout for this mortgage was $232,800 with an original loan date of 2/3/2009. At the time of this loan, our home appraised for $275,000. We currently pay $1285.53 in principal and intrest and $53.62 in PMI every month.

We have recently inquired about a re-finance with a different bank that offers VERY low closing fees. The new loan would be a 30-year fixed mortgage with a rate of 4.25%. The closing costs, which include the credit check, appraisal, etc. would be $350 (total). The loan amout would be $230,000 and we would likely close sometime in December 2010. The bank has quoted me at $1131.46 per month for principal and interest and $103.50 in PMI per month [as long as the house were to appraise at $275,000 (or more), which is quite realistic given that the real-estate in our neighborhood is still comparable to what it was when we last refinanced].

Other information that may be relevant…. My husband and I have both had excellent credit scores for the past several years (i.e. at least 770 or above) and nearly everything else in our financial picture has improved over the course of the past few years (i.e. less debt, better credit, more in savings, 401K, etc.).

I have tried to do some calculations using amortization tables and such and while I realize that my payment will drop by approximately $50 per month, I am wondering if it is really worth it (over the long haul) to refinance at this time given that we will be paying more for PMI? Can you help me get my hands around this? Any advice?
– Christine

The important thing to remember is that your PMI will only exist for a limited time – until your mortgage balance is 80% or less than the appraised value of your home. Once you reach that point, the PMI vanishes.

I would absolutely take the lower-interest loan with the higher PMI. Channel the monthly savings into extra loan payments and get to that 80% mark as quickly as possible, at which point you’ll be in far better shape than you were before.

PMI is a temporary thing. Your interest rate lasts for the lifetime of the loan.

Q8: Building credit (or not)
My son will be 17 years old in a few weeks. He will be buying a truck for cash from his Grandpa. It will cost $1,500. I am wondering if it would build his credit to give him three different $500 checks over several weeks?

– Chris

If this is just a cash transaction between two individuals, it will have no bearing on his credit rating.

The only way this can impact his credit rating is if a bank is involved. A bank would have to issue a formal loan to your son for the truck, which would then be reported to the credit agencies. Then, your son could pay off that loan, resulting in a fully paid loan appearing on his credit report.

It might be worth it to stop at your local bank and talk to the lender about this, purely for the reason of establishing good credit for your son.

Q9: Using a Roth for savings
I am a stay-at-home mom fully funding my roth. Husband puts 10% of pre-tax into his company 403B getting the full company match. We have our emergency fund fully funded and sitting in an online savings account (earing 1.15%). We are committed to not touching it unless it is absolutely needed. Now that we have fully funded the e. fund we want to start saving of other goals (redo laundry room, big screen tv, Disneyland vacation, etc). These goals are between two and five years out. I’m wonderind where we should save money for our other goals. One thought was group it with the e. fund knowing that we never let it go below a certain point, however this concerns us because in the past we’ve dipped into our e.fund for things that were no emergencies. Our financial advisor suggested that we open a Roth for my husband with the intention of using it for these goals, not strictly for retirement. His arguement was that we’d be building up the interest earnings over the years so it would be a nice bonus for us during retirement, while also allowing us to build up our savings for those shorter term goals. Retirement isn’t too much of a concern because we are on track right now to have over $4 million in husband’s account and around $700,000 in my roth at 65. What do you think we should do for those 2-to-5 year goals?

– Jennifer

That plan makes reasonable sense to me. You’re essentially just foregoing the small amount of interest you’d earn in a regular savings account in order to bolster your retirement savings a bit more.

There are only a couple of small drawbacks. One, your annual cap on the Roth is $5,000. I don’t know how much you’re saving, but if it’s more than that, you’ll have to use other methods to supplement it.

Two, you won’t earn any return immediately on that money – the returns will be untouchable. At the same time, your money is at risk in the account unless you invest very, very conservatively.

I would still follow this plan in your shoes, however.

Q10: Consolidating public loans
I have a whole bunch of student loans for grad school. The interest rate is a relatively high 6.5 and 8.5%. I called the lender but was told that grad loans (stafford subsidized and unsubsidized loans) cannot be refinanced. Do you know if this is true? Any options you can see?

– Gal

They cannot be refinanced, but they can be consolidated if you’ve not already consolidated them, which it sounds like you did not.

If I were you, I’d start at http://loanconsolidation.ed.gov and look into consolidation. Those interest rates aren’t horrible, but you certainly should be able to lower them a bit, especially the 8.5% loans.

Good luck!

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

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  1. Katie says:

    I’m confused about the answer to Jennifer. Isn’t two to five years almost universally under the time window people suggest investing in the stock market for? The “putting your principle at risk” seems like the main issue here, not an afterthought.

  2. Johanna says:

    @Katie: “Roth IRA” does not equal “stock market.” You can put money in conservative investments within a Roth IRA just like you can outside of a Roth.

    And besides, the “don’t invest short-term savings in the stock market” rule is overly simplistic. You need to consider not just the time frame of the goals, but also your flexibility. The goals Jennifer mentions are all luxuries, so maybe she wouldn’t mind so much if she had to postpone her Disney vacation because her investments tanked. (Or maybe she would mind, in which case she really should stick to conservative investments.)

  3. Johanna says:

    @Laura (Q4): If you’re still in the DC area, would it work for you to use Zipcar (or rent a car when you need to take a longer trip)?

  4. kristinelevy says:

    Q1-Not sure if you answered her first question, unless the how-to is meant to convey- yes, good idea?

  5. Sharon says:

    Why isn’t bailing your mom out part of your monthly plan? It looks like you will have to do so frequently and for a long time to come.
    I would try to find ways of helping mom which don’t take a ton of money first. Can you add her to you cell phone plan? Depending on the plan that may be as little as $10 a month. I would think that your house plan would include a monther-in-law suite or extra apartment.
    She should also think about starting a steady job. Does she have a master’s? If so she might be able to teach as an adjunct art proffessor at the local community college. (At least our CC requires a master’s–other schools might not)
    And approaching 60 is not terribly old. If she doesn’t have a college degree she could look into doing something fairly short. Depending on hte program she could even get financial aid. CNA or pharmacy tech etc. And as I recall recreational therapists at a nursing home have no standard degree.
    I would however help her look as something that she would be comfortable doing until she is 70, at least part-time.

  6. Tammy says:

    To my knowledge, Chris’s son can not take a loan from a bank if he is under 18. A minor can not enter into a legal contract

  7. Ellery says:

    Trent, you might try Buxfer as a replacement for Wesabe. You can upload statements rather than giving the site your bank login info. I’ve found it to be pretty helpful.

  8. Jim M says:

    Re: Q7

    Trent, can you follow up with them? What bank has only $350 in closing fees?

    Or does anyone else have any idea? US Bank quoted a refi with over $3k in closing fees. I’m at $118,000 principal @ 4.825% on a $150,000 property and it wasn’t worth it to refi with US Bank. However, with whatever bank this person is using, it might be..

  9. Michelle says:

    Q1 – Would the secured credit card actually help to rebuild the Lisa’s husband’s credit? Does recent history of on-time payment superceed a black mark?

    Q3 – Just as important as speaking with your husband is then telling Mom what your plan is regarding helping her with finances.

  10. Evita says:

    In my country, minors (less that 18 year-old)are not allowed to contract a loan. Is it different in the U.S. ?

  11. Kathy says:

    Q3-Why is this person obligated to bail their mother out time and time again when the mother here is clearly being irresponsible? Why does this adult child have to suffer financially and have to alter their future plans because of an irresponsible parent?

    I’m sorry that I sound harsh here, but this subject hits a bit too close to home for me. My MIL did this thing to my husband and it ended up wrecking his credit. This woman is an adult and should be able to stand on her own two feet. Her adult child is just enabling her mother’s irresponsible behavior by bailing the mother out all the time. The mother has no choice but to take care of her own finances. She is an adult and she should know better.

  12. Jan says:

    He can get a loan with the parents co-signing the loan. It’s a good idea to put him through the process and, yes, pay a little interest to teach him the responsibilities of taking out a loan and making the payments on time. The parents can hold the funds and give him enough to make the payments to ensure that he is successful on this first loan. I would also suggest they secure the loan from a small local bank so that he can build a relationship with a loan officer.

  13. Courtney20 says:

    Re #9 – I’d definitely recommend the Roth idea, but with one caveat. If you use the Roth as a savings account, you need to be aware of the fund minimums (at Vanguard, it’s usually $3K – their STAR fund is only $1K though). For example, you invest $5K in a fund that has a $3K minimum and it grows to $6K. If you take out more than $3K, however, Vanguard can close the fund at their discretion (moving the proceeds to a money market account). Just something to keep in mind.

  14. Amanda says:

    My MIL is pretty irresponsible with money. We are planning to add an addition to our home so she can live with us.

    We did add her to our cell phone plan. $10 and we had extra minutes anyway!

    But, I agree with commenter that the mom has to be on board. My MIL was ready to get out of credit card and student loan debt and now every couple of weeks I email her the budget plan.

    Coming up with a plan for her care wasn’t an option for us. I am Christian and for me following the Bible’s command to take care of your family is #1. FOR ME.

    However, some of debt came from “helping” -enabling- her defunct daughter and now she has a car loan to pay!!! She’s also had a full time job for the past 6 years. She always worked full time off and on but usually they weren’t steady/stable jobs. Thankfully she’ll get a decent social security amount.

    Questioner–I hope everything works out with your mom.

  15. Ruth says:

    @ Michelle Yes, the secured credit card would help to improve his credit score. A current history of on-time payment isn’t a magic bandaid to cover up a closed card, but all information is considered in determining a person’s credit rating, not just a single piece.

  16. Ajtacka says:

    Trent, I just wanted to say “thank you” for your comment. I know it’s not what you intended, but it’s great advice for me – I’m in a country where I speak the language at a very basic level, but being inherently shy makes it hard to move past that stage. I’m slowly finding out how to just “push through”, and even inadvertent reinforcement helps :)

  17. Josh says:

    Prepare for the future. If you aren’t in a heavy debt situation don’t ever get in one. If you are just keep working hard and don’t stop until it’s all gone!

  18. jim says:

    Q7: $350 closing is too cheap. If you started with a $232,800 loan in Feb 2009 at 5.25% then right now you should have a principal balance of around $227,000. So if you refinance and end up with a loan of $230,000 then it sounds like they are adding $3,000 to your loan principal. Its probably negative points or some other money shuffling that is costing you $3k that you may not realize. Plus that PMI rate seems pretty high. I’d shop around for other lenders. Your current refinance offer may not be awful, considering but it may not be as good as it looks.

  19. Jeanette says:

    Re helping the financially challenged mother. First, we don’t have ALL the details here. There may be health issues that limit the mother’s ability to work and/or issues affecting her financial decisions (often this information is not shared in stories like this).

    But regardless. My brother and I did not have a close or good relationship with our mother, who though she worked, was financially irresponsible in some areas, and more so after a divorce in her 60s.

    However, over the years, I made significant and ongoing contributions to her finances. Was it always easy? No, and towards the end of her life (which we did not know at the time), it was a real nightmare. (My own health was bad and my work options extremely limited.)

    Did I like doing it? Not especially. Did I feel obligated? No. Did I do it? Yes, of course.

    It’s not even about “family” (cause she only acted like we were family when she needed help). It’s about helping someone to the best of your ability and yes, you start within your own immediate “community.”

    We tried in many ways to get her to be more responsible, especially in the last years of her life when we discovered some serious issues she had hidden from us.

    Sadly, her behavior re money in the last months of her life when we were all working hard to get her into a decent ALF alienated her finally and irrevocably from us. She got the care she needed, but we all paid a much higher price than $.

    Some parents are not just financially irresponsible. They may have addiction issues, gambling problems or cognitive issues that affect their choices. It’s a complex problem at times and no matter how you try to help, if they refuse it, you are up the creek.

    Encourage and help the woman find full or part-time work if available, then basically get her to commit to certain things or tell her you can’t help. She’ll shape up on some levels and you can then plan accordingly.

    If she expects you to take care of all her expenses, whether she tells you or not, you’re going to have to figure out how to incorporate her expenses into your monthly ones.

    FYI: If there is no possibility of her moving in with you (often all of this financial irresponsibility is a ploy to do this), make that clear. Often that is the final incentive for someone to take more charge of their situation.

    If this woman is not employable for legit reasons, then you will have to pay for her future.

    Trust me, you will find it easier to pay than to deal with your own feelings if you abandon her.

    It’s not about obligation. It’s about living with yourself.

    As I said, we had horrific relationship with out mother, yet the thought of abandoning her never entered our minds.

    It’s just not conceivable.

  20. Dangerman says:

    Q10 – “Those interest rates aren’t horrible, but you certainly should be able to lower them a bit, especially the 8.5% loans.”

    NO! Consolidating does NOT change the overall interest rate of your loans. It merely gives you one big loan with a interest rate that is the weighted average of your old loans. You never save on interest by consolidating… you merely have the option to lower your payments, which of course means more interest paid in the long term.

  21. Kathryn says:

    On question 1 – make sure whatever you are doing to try & build your credit actually reports.

    Granted, this was years ago, but with my first husband we were trying to “build credit.” In doing so we found it easier to get small loans from local stores. Eventually we learned that these places only reported BAD credit. You could make every payment on time & it would never be noted by the credit agencies. So we wasted time & money with these places trying to build positive credit. We had to change our plan of attack in order to build credit.

    Probably not an issue here, but be sure first!

  22. Kathy says:

    Q3 again. While yes, we don’t know about all the issues behind what is going on with the mother, I do know from experience that you cannot help someone who does not want to be helped. In our case, the MIL is mentally ill. She has no interest in seeking treatment for her mental illnesses and unless she is a danger to herself, we cannot force her to get treatment. She chooses to use it to get people to feel sorry for her and she loves to play the victim all the time. She could not hold a job, either. She thinks that just because she has mental illness, it means she entitled to receive help and that everyone else in the family is required to bail her out when she continually gets herself into bad situations.

    Again, I am sorry if I come across as harsh on this, but as I said, it hits way too close to home for me. We had to basically wash our hands of her because her drama was not worth us going broke or the stress it caused us. Sometimes, people won’t learn unless they learn the hard way. It’s not easy and it was not easy for my husband to finally say no to her, either. But it had to be done.

  23. Courtney20 says:

    Jim #18 is right – your bank is almost certainly rolling the closing costs ($3000 sounds average for that loan amount) into your new loan. You should also consider that, since you are paying less interest and more PMI, that interest is tax deductible if you itemize, but PMI may not be (depends on your income).

  24. valleycat1 says:

    Q1 – secured credit cards – I think it was here on SD that these were discussed more fully, & once you have a good record with a secured card, you can usually get a standard credit card at some point. Local credit unions are a good starting point.

    A20/Dangerman – Good info regarding the loan consolidations (going on the assumption that you are correct). I’m not in the position of needing to consolidate, but I don’t think I’d ever heard this intel about the interest rates; could come in handy should family or friends want advice.

  25. Steve in W MA says:

    @” If we don’t they will charge off the account and the debt may be sold to a collection agency. Are we past the point of them working with us?”

    If the debt is sold to a collection agency, make the debt collection company take it to civil court to collect, and defend it vigorously, as they are a third party to the debt and you no longer owe the original creditor anything. And as to the alleged owner of the new debt, they have to prove they have legal standing to collect (or they do in my world). There are a number of technical documentation issues that need to be intact for them to prove to the civil court that they are the owner of your debt, and you would challenge them to show this. In this case, since you don’t know the debt collection company from Adam, make the collection company prove they have legal standing to collect the debt in court by challenging their documentation.

    However, if you don’t want to take the credit hit of having the charged-off debt on your credit history, then start working with the existing original creditors now, before they sell the debt and the right to collect on it to a debt collection company.

    Keep in mind that a debt collection company will be buying that debt at pennies on the dollar–most likely no more than 30 cents to each dollar owed.

    If you take this route you will be paying a lawyer to defend you. In cases like this you will want to find someone who is versed in dealing with these issues, unless you are the unusual person with the temperament to learn about this yourself and defend it yourself.

    Of course, you could decide just to pay, like most people do. Keep in mind that if you pay the wrong party (if someone impersonates or scams to pose as the true owner of the debt) then you will still be liable to pay when the true owner comes to call. Which is why I would make anyone but the original owner present their case IN COURT before paying. It provides you both a legal record, and fully exposes the evidence that they are in fact who they say they are. Again, keep in mind that if it gets to this point you don’t owe the original debt to the original creditor anymore, and in fact CANNOT pay the original creditor because they no longer have rights to collect on it.

  26. Steve in W MA says:

    @ q4, “time to switch cars?”

    I’d say “no”. Your 95 Acura is likely in poor shape because you have skimped on maintenance. I’m guessing that $1500 will put it in excellent condition, and Acuras in general are very reliable cars (Basically, they are like a rebranded Honda technology, and Honda is among the most reliable cars out there. Ask me, I’m driving a 92 Honda Accord and plan to drive it for another 5 years.)

    Put that $1500 in it and you’ll have a car for the next 5 or more years. You can’t get reliable transportation for less than that. And besides, you already stated that you don’t drive that much. Why spend thousands more for a different car, and have to make payments, when you can keep the car you own and make it solidly reliable and not have payments? Saying “the car isn’t worth the $1500 that I’d have to put into it” is the wrong perspective. The correct perspective here is “how can I get reliable transportation for the least amount of money?” And the answer is to fix your existing Acura.

  27. Steve in W MA says:

    @ q4 again, the $3000 that laura is contemplating spending on a new car is just the down payment on a financed car. For $1500-$2000 (or 2/3 of the proposed down payment) she and her husband could have the 95 Acura brought up to full par and have a good car. To me the answer is obvious: invest the money in repairs on the Acura and save thousands upon thousands of dollars.

    When it does come time to buy a different car, buy a good used car for $5000 or less from a private individual.

    I have never spent more than $3200 for a car and would not spend more than $5,000. That $3200 car has lasted me 10 years so far and has never let men down. Don’t let the illusion that a 1995 Acura is “too old” get in the way of the reality that that car is still plenty roadworthy–if given the care it needs and deserves. A car is just a bunch of parts bolted together. Replace some of the creaky ones with brand new parts and the old car becomes very much like a much newer car, and at much less cost than the new car. Really.

  28. Steve in W MA says:

    edit: “[that car]has never met ME (not men!) down.”


  29. Shelley says:

    Hang on…in the bit where the stay at home Mom says she’s ‘fully funding her Roth’…I thought the money you put into a Roth had to be earned income. Does she work from home or something? Have I missed something in my reading about Roths? All my income is rental income in the US. I live in the UK and whilst the UK honours the tax free nature of Roths, the US doesn’t recognise ISA’s, the tax free savings here in the UK. I’m more afraid of UK tax than US, so I shelter from UK tax first, but I’d love to be putting money into a Roth if I could. I tend to follow my own advice gleaned from the internet, as my income and taxes are so low that consulting a professional would instantly double or triple my costs, with no assurance of future savings. Anyhow, how does a stay at home Mom fully fund a Roth account?

  30. Johanna says:

    @Shelley: Spousal contributions. A married couple that files taxes jointly can fully fund Roth IRAs for both partners, even if only one of them has earned income.

  31. Jane says:

    I was clued in to the fact that loan consolidation probably wouldn’t benefit me when I started noticing how much the loan provider sent me flashy brochures encouraging me to do it. I asked myself, “Why would they waste money printing and sending me this if it didn’t benefit them? And if it benefits the lender, how can it also benefit me?” That convinced me NOT to consolidate.

  32. Pattie, RN says:

    ITA with Kathy (#11) regarding this young couple mortgaging their future for a capable adult who won’t get a job and step up to the plate regarding her own finacial life. Sorry, if Mom had been hit with MS or some other horrid disease that rendered her unable to work, I would have some sympathy. But, this woman has “played” at being an artist and doing odd jobs while shacking up with a boyfriend. At least if she had been married the possiblitly of spousal support or dividing marital assests whould have helped . So, it is time for this woman to grow the heck UP, get a job, and plan for her future. I am about the same age, and know I will be working for 15 years or more. Tough love can go either direction between generations!

  33. Kevin says:

    Shame on whoever let that musician rack up $100k in student loan debt. He will be struggling to pay back that debt for the rest of his life. His income is $10/hour.


    Why don’t high school guidance counselors tell people it’s a bad idea to borrow $100k for a degree that earns you $10/hour? You can get a $10/hour job without any degree at all! But no. Instead they fill teenagers’ heads with notions like “you can be anything you want to be!” and “don’t let anyone stop you from chasing your dream!”

    Shameful. That poor man. My sympathies go out to him. His path through life is going to be a hard one.

  34. JJ says:

    Re: Q4, I’m with “Steve in W MA” on that one.

    It’s not a choice between paying $1,000-2,000 in repairs and paying $3,000 for a newer car. That three grand is just for the down payment. Laura didn’t say what sort of car they would theoretically get, but I’d imagine that the ultimate, total cost of “option B” will be far, far, more than $3,000.

    My recommendation? Pay for the repairs and/or maybe look into repairing some of it yourself to save money where possible. Then start focusing on socking away enough money for new(er) car that, when it eventually comes time to buy it, you won’t need a loan at all.


  35. Hi, I have worked hard to pay down and get rid of my debt but there is one huge problem I have been so overwhelmed by I have just buried my head in the sand about it. Student loan. I left school about 10 yrs ago and have never been able to even pay the interest let alone the minimum payment, so what started as 15,000 is now 30,000 and I am no closer to being able to make payments. We live a very stripped down life as it is, and I have struggled for years with trying to make more money. So those two options are out for now, have you ever heard of any debt negotiation or semi- forgiveness for student loans. I have tried talking to Sallie Mae and the phone customer service people don’t even seem to understand my questions. Any suggestions?

  36. Honey says:

    Federal Stafford loans have been at a fixed rate of 6.8% since 2006. When you consolidate, it is the weighted average of your loans (so, the average rate + .25%, I think). So there is NO WAY to reduce the interest rate on those loans.

    If you have pre-2006 loans, then those are the prime rate plus a certain percentage (so, VERY low right now). It is worth consolidating (even with the additional .25%) because interest rates have nowhere to go but up.

    You can only consolidate ONCE.

    So unless you have pre-2006 loans, or post-2006 loans originating from multiple lenders (to the point that you’re afraid you’ll forget to pay someone or it’s hard to track that many EFTs from your account each month), there is NO financial incentive to consolidate Federal Stafford Loans.

    Private loans, of course, are a different ballgame altogether, though I don’t have any so I don’t know about them.

  37. jim says:

    #36 Sabrina, Do you have private loans or are they federally backed loans? If your loans are federally backed then you may qualify for income based repayment program. But I don’t think you can be in default. The banks have no reason to negotiate on your loans, you’re basically stuck with them.

  38. SP says:

    As a previous commenter mentioned, stafford loans moved to a fixed rate in 2006. Consolidating has no impact on the interest rate anymore.

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