Reader Mailbag: Renewal

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. Foreign country move
2. Is car replacement necessary?
3. Cell phone discount question
4. Collection sell-off
5. Car buying question with debt
6. Challenging home buying question
7. Hobbies and marriage
8. Helping mother-in-law
9. Books for economics
10. How children alter free time

Who are the ten closest friends you’ve ever had in your life?

Are you still in touch with these people?

Why not? Why not get in touch with them today? Why not break down the barriers in your life and tell them that they were truly important to you?

Q1: Foreign country move
My husband and I are contemplating a move to Honduras around February of next year. We are working on paying off our debt, and will have about $8500 left to pay off in February. We will also have a savings of about $3000. We are planning to sell our cars before we move, which will give us about $8000. I would like to have a large fund for emergencies and such while we are gone, as we will be living on a tight $1100/mo and won’t be able to pay for any doctor/hospital visits that come up. I could use the $11k to pay off debt and still have $2500 left for Honduras, or I could use the money to pay $300/mo while we are gone and $7400 left for emergencies or expenses when we come back to the States. This would also put our debt down to $4900.

Which option do you think is better? With the uncertainties of moving to a foreign country, would it be better to have no debt or to save money for the unexpected?
– Rachel

It would depend heavily on my knowledge of the country I was moving to and my confidence in being able to navigate the culture there effectively.

Are one of you originally from Honduras? Do you have a strong social network there? Are you familiar with the culture and the language there?

The less certain I was about the culture I was moving to and the social network I would have when I went there, the more important I would consider having an emergency fund to be.

Q2: Is car replacement necessary?
My question is one that many of your readers have asked before. But I believe mine has a unique twist to it. My question is – Should I buy a new (second hand) car? I currently own a 2002 BMW 325i bought second hand from a friend. I’ve had this car for four years now. The car looks brand new but has 150K+ miles on it. The car runs fine, except for one major flaw – there is a leak in the head gasket that causes the car to go through oil faster than normal. I’ve shown it to a few mechanics and have got quotes for $1000-$1500 to fix it. All of them have told me that I can drive the car without worries as long as I regularly fill it with oil. I really only use the car to buy groceries and perhaps go somewhere over the weekends. My car insurance minus collision is around $650 a year. I’ve been using the car with this problem for over a year now and the only money I’ve spent on it was to get 4 new tires last month ($450). It gives out a white non-smelly smoke every once in a while but other than that it looks brand new. So my question was, should I sell this car (perhaps get ~$2500 off it) and look for a new one? I have a well paying job and am currently debt free. I am single, 29 years old and am saving up to buy my own house before the end of next year. I can afford to buy a new (second hand) car for ~$10,000 but I feel for my needs, that is useless. I *do need* the car for groceries though.

– Chris

Given that it’s such a low-use car, I probably wouldn’t replace it. I’d just keep a container of oil in the trunk and fill it when it needs filled.

If this were a high-use car with a wide variety of essential functions, I would lean toward replacing it. However, in your own words, the one function you really need it for is groceries, which is something that can typically wait a day or two if necessary.

From what you describe, a replacement car doesn’t add enough value to your life to be worth the expense.

Q3: Cell phone discount question
My husband qualifies for a 23% discount off of our cell phone bill through his work. When we went to the carrier to apply it, however, they said that only the primary account holder can apply a discount to the account. I am the primary account holder, and I don’t qualify for a discount through my work. Naturally, we asked if we could just switch and let him be the primary (After all, we are married!) They said in order to do this, we would be charged a “transfer service fee” of $18 per line (totalling $36) and it would essentially start a new account with the carrier. Our cell phone bill is only $100.89 a month, so we would be saving approximately $23.20 a month. Would it be worth it to pay $36 for the discount? We are struggling financially right now and every dollar matters. $36 seems like an awful lot to change the account holder, but the $23 extra a month would really be helpful.

– Christine

Yes. You should do this, absolutely, without hesitation.

You will repay the initial payment in a month and a half. Everything after that is pure savings. You will have $23.20 a month that you didn’t have.

If this door is open to you, it’s a spectacular investment, one that you should jump on immediately.

Q4: Collection sell-off
I have a large collection of baseball cards. Many of them are from the late 1980s and early 1990s, but I also have a nearly complete set of 1968 Topps cards, many individual cards from the 1950s and 1960s, and a few cards from the 1930s. I don’t watch baseball much any more and my connection to these cards is basically gone. I would like to sell them but I don’t know where to start.

– Thomas

I’ll be frank: virtually all baseball cards from the late 1980s and early 1990s are worth more as kindling than as baseball cards. There are a few exceptions, like the 1989 Upper Deck Ken Griffey Jr., but those exceptions are few and far between.

The vintage ones, on the other hand, have held their value quite nicely. However, vintage baseball cards have really moved into an era of professional grading, where a handful of companies certify the condition of cards and package them in sealed containers that state that condition.

If I were you, I’d ask around your social network for a trusted card appraiser and find out if it’s worth it for you to get your vintage (pre-1970) cards professionally graded.

Q5: Car buying question with debt
I have bad credit. Always have. I am making an attempt to improve it and could use your advise on a price of the puzzle. I am debt free except for my student loans, which I’m paying monthly, and only have one credit card, which I pay off fully each month. My question is about my car. It probably won’t last more than another year. I have about $5000 in savings but not really contributing to it right now because on a very tight budget. When it is time to buy a car, should I take out a loan (if I can get one), buy a car, and use the savings to make payments to improve my credit score or just pay cash for a car out right? I would like to buy a house in the next few years, that’s why I’m interested in improving my score.

– Dave

If you have a credit card that you’re paying off every month, your credit is already solid. Any slight benefit you might get from a car loan is not worth the interest you’d have to pay on it.

It’s always a good thing to have something establishing good credit for you because it does affect things like your insurance rates. However, a single credit card with a regularly paid off balance will take care of establishing pretty good credit for you.

I would just pay cash for that replacement car.

Q6: Challenging home buying question
My husband and I were recently married in October 2010. Before we were even engaged, we started working with a financial planner to get our money in order. We knew that in the next 10 years, we wanted to get married, buy a house, and start a family. That was a few years ago, but our goals are the same. We rented an apartment in the town adjacent to our hometown and were happy there, though it was a bit tough to pay rent and utilities and try to sock money away for a down payment at the same time. We’ve done some job flip-flopping in the past few years, but now we’re holding steady: he’s a firefighter and owns a small landscaping company and I work in marketing at a small environmental services company in our area, supplementing with some occasional freelance writing/marketing work.

Then, we more or less hit the lottery. A historic house in our hometown was in need of resident caretakers, and we were approached to take on the role. Basically, “earn our keep” by maintaining the property and organizing all the rentals and in return don’t have to pay rent or utilities, just the landline. It’s a 3-year lease. We’re thrilled, because it affords us an amazing opportunity to save like mad for a down payment on a home a few years down the line. We’ve started putting away $2,000 per month for that, effectively paying ourselves rent.

Today, I got an email from a real estate agent I do some work for with a few listings. One was in our hometown, in the neighborhood we both grew up in, for only $129,900. For where we live just north of Boston, that is a STEAL. The house needs a lot of work, though, and was described as a “complete rehab, likely tear-down.” We want to rehab it. I started poking around, doing a little research, and found that there’s an FHA loan called a 203k that provides for a fixer-upper property. From what I understand, you itemize all the renovations required and get an estimate for them and bundle that in with the cost of the home. The red flag is that the septic system may not pass inspection and could have to be repaired/replaced. After a little more digging, I found that Massachusetts has a septic system repair assistance loan that we’d likely qualify for based on our income that would run at 5%. The agent who sent me the email mentioned septic repair/replacement can run $15,000-$25,000.

It’s worth noting that we would not break our lease to purchase this house. Our idea is to buy it and start the renovations once we have a little more built up in our savings, with the intention of moving in in about 3 years. We’d be making mortgage payments while we were living in our historic property rent-free and taking care of the renovations without having to worry about living in the middle of them. We’d also try to do a lot of DIY– we’re both handy and so are our families.

My question is two-fold: one, is it advisable to buy the house even though we don’t plan on living in it for a few years (we can afford it), and two, have you heard of a 203k loan / what are the odds of being eligible for the 203k and assistance loans at the same time? Would reducing the amount of the 203k loan based on receiving the septic assistance loan help us at all? Or hurt us?
– Carrie

A 203(k) loan is just as you described it. It’s a loan program for home repairs. The assistance loan that you describe is a program I’m unfamiliar with, but from what I could find, it seems to be fairly similar to a 203(k) loan – a loan program for a specific type of home repair.

If I were you, I would make sure exactly what you were borrowing for before worrying about borrowing money. Will you need the septic loan at all? If so, can it be bundled into the 203(k)? Will it prevent you from getting the house at all?

You seem excited. The best move to make is to sit down and look at your situation one piece at a time. I would probably start by finding a credit union that you trust that handles these loans and talking to a loan counselor there.

Q7: Hobbies and marriage
My wife is an avid player of World of Warcraft. I play a little bit, but it is her main hobby. I am frustrated sometimes because it takes up many of her evenings but I have a difficult time making it clear to her how really frustrated I am. I don’t like sitting around doing nothing while she’s in a raid. What can I do?

– Donny

To an extent, you need to accept that your wife has a hobby she’s passionate about. That’s a good and healthy thing for her to an extent.

The issue arises when that hobby begins to interfere with relationships, which it seems to be doing here. This should not be a choice between you and World of Warcraft, as that will simply create resentment. Instead, it should be in the form that a healthy life includes all things in moderation.

My wife and I have some different hobbies and we engage in them in the evenings. Sometimes this means we do our own thing, sometimes we do things together. In either case, though, we make sure that there is some time for each other doing something we have in common.

Q8: Helping mother-in-law
About 2 years ago, my dad (in and out of employment, constantly late on all bills, had a bankruptcy years back) was able to refinance his mortgage with the HAMP program. He had a terrible ARM that adjusted every few months, and the HAMP helped him save significantly on the mortgage payment.

Based on that success, I suggested my mother in law apply for HAMP. My mother in law (who works her butt off 7 days a week, 12 hour days from 4:30am, has never been late on any of her payments, has perfect credit, etc) was declined for HAMP. The bank offered her a refinance (or adjustment, not sure) that lowered her Interest Rate from 6.75 to 5.75 (about 6 months ago) but it was not enough. With my dad’s HAMP adjustment, they lowered monthly payments to 33% of monthly income. My mom in law’s right now is more around 60%.

The bank also told her that she would not have to pay ANYTHING and that the refi was free, but after it processed she saw her principle amount owed on the mortgage raise 3k. There was a language barrier there (she speaks mostly spanish) so I guess there was a miscommunication)

My mother in law is STRUGGLING working so much to pay the mortgage. Even her Doctor said she needs to cut back hours (down to a normal 40 hrs per week) because of her health, but thats impossible because the majority of her money is made in overtime (time + 1/2) hours.

She currently rents a furnished room to her brother (I believe $125-$150 per week) to help supplement, but she still works the terrible amount of hours. My wife and I have suggested she redo her basement as an income property as many people do in her neighborhood (it’s 1/2 finished now and has a full bath, no kitchen). But that is hard because of the up front cost of renovation (I’m guessing around $10-$20k), but that may be offset by a rise in home equity. My guess is she would be able to get at least $1000 per month for the income property, and there is a strong market for renters where she lives.

Any ideas how we can help her? I don’t know much about mortgages and refinancing. Can she try to refinance her mortgage again to take advantage of the the 4%-ish rates that are around now. Would she have to shop around to another bank? Would the refinance cost (another 3k) be worth it? Should we really try to get the income property done, even if it means taking out an additional loan? Any insight would be appreciated.
– Ronald

The first thing I would do is attempt to appeal the declined HAMP application. Examine the notice that she received declining her application and seek out how to appeal it.

You should get involved as your speaking skills are much stronger than hers. It is much easier for a bank or a program to decline someone who can’t protest.

If this doesn’t work, I would suggest visiting her bank. If they won’t offer her a fixed rate loan, I would suggest visiting a competing bank for a refinance. A refinance out of an adjustable rate is well worth it, and if she can drop her interest rate by 3%, it will make a world of difference to her.

Q9: Books for economics
I’m trying to gain a basic understanding of how the economy of the United States works. Do you have any book recommendations?

– Kevin

Probably the best single volume for a beginner on economics today is Naked Economics by Wheelan and Malkiel. It’s very easy to read and spells out the big ideas in economics very well.

The problem with a lot of economics books is that they’re tied heavily to the viewpoints of the author and inevitably end up prescribing political solutions. Although there are a lot of great books you can follow up Naked Economics with, be very wary of viewpoints from the author.

Naked Economics isn’t perfect, but it’s a great starting point and much less biased than many other starting books on economics.

Q10: How children alter free time
My husband and I are thinking about trying to have a baby. I have heard a lot of accounts about how having a baby will change your life and you’ll not really have free time any more. I understand that you’ll have to stay home with the baby a lot but my husband and I don’t go out anyway. I don’t understand what will really change when we have a baby.

– Angie

We felt the same way as you did. Trust me – it does change your life.

The biggest impact is that sleep is no longer a reliable thing for several months (at least). The baby’s cries will wake you both up, even if you don’t recall it the next morning. These wakings will happen every hour or two at first and gradually slow down to two or three times a night. In other words, good sleep will become a thing of the past for a while.

You’re also going to have a tiny living person there with you. This person will need your help with everything. Eating and drinking. Pooping and peeing (get used to it). Entertainment and stimulation. Hugging and cuddling and love. This takes time – a lot of it. Most of the time, it’ll be just one of you involved in this, but unless you want other marital issues to arise, you’ll have to balance who’s on “baby duty.” This will drastically reduce the time you have to do things together – and even if you did have that time, you’d be dead tired from the lack of sleep.

This all sounds horrible, but it’s worth it.

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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