Reader Mailbag: The Arrival of Spring

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. Parents and loans
2. Moving back in with parents
3. Handling my tax refund
4. Advice for military son
5. Income for an expectant mother
6. How much house?
7. Decision-making process for couple
8. Financed purchases or credit card?
9. Handling medical debt
10. Value of a better neighborhood?

It took until the first weekend of April for spring to arrive in earnest, but when it did, it provided two days of gloriously beautiful weather. I spent almost the entire weekend outside with my family – going on walks, cleaning the yard, playing countless backyard games, using a bunch of homemade bubble solution, and so on.

I love to see winter arrive, but then I’m at least as glad to see it go.

Q1: Parents and loans
I got a great job right out of college and have been sending my mother a check for ~$300 to cover the parent plus student loan she took out to help cover my tuition. However I recently found out that the loan is on an interest-only repayment plan, so essentially no progress has been made paying down the loan since I started (few years ago). It isn’t possible, from what I can find online, to refinance the loan, nor for me to take ownership of it, and I’m worried that starting to pay down the principal will become a higher payment than my mother can afford.

I’m happy to help pay down the loan, but only if progress is actually getting made, and I don’t even know where to start when talking to my mother.
– Aaron

The first step is for you to decide how much of this bill you want to shoulder. Are you willing or capable of making payments on it yourself that are large enough to start knocking down the balance?

It sounds as though the loan is more than $300 a month just to cover the interest, which means the bill must be enormous.

If you are willing to take over the loan, and it sounds like you are, why not just handle the billing and payments online? I’m willing to bet that the financial institution that offered the loan offers some form of online billing and account management, which means you could effectively deal with the loan yourself.

You need to decide for certain that this is a course of action you want to take, though.

Q2: Moving back in with parents
I’m currently stuck at a crossroads. I am graduating in May and I already have a job offer on the table. It’s in my hometown area and about ten miles from where my parents live. It would make sense for me to move in with them for a while to save on a lot of bills and if I split with them it would save them money too. They have two extra unused bedrooms one of which was mine when I was in high school. I don’t mind the social situation much at all since I could move out if I needed. Still, I feel like I am failing in some way if I move back in with them. Advice?

– Dave

At this point, if you’re earning enough money that you could live on your own if you so chose, you’re essentially just exercising one housing option by living with your parents. They would be your landlord and you would be their tenant. Any arrangements between the two of you should be based on that.

In this situation, I would think it would be appropriate for you to pay some portion of the household bills, a small amount for actual rent, and a contribution to the groceries. It would be substantially cheaper than living on your own, but it would also take some of the burden off of your parents.

Before you approach them, figure as much of this out as you can beforehand. Come up with bill estimates and figure out what you think your share should be, then total all of that up and figure out what you would pay them each month. Approach them when you have that kind of estimate in hand.

It’s not regression. It’s just a potentially inexpensive housing option.

Q3: Handling my tax refund
I am currently 27, single, debt free, serving in the military with a healthy rainy day fund. I spent 7 months of last year in Afghanistan (a tax exclusion zone). As a result, I have about a $7,000 refund coming back to me between state and local taxes. I have no need for the money to pay bills or monthly expenses, so it is essentially an unplanned $7,000 paycheck. I have a couple items on the horizon for which I could use this money.

1) I am moving in the summer back to the US, at which point I will need a car. (used, no lease or new purchase)
2) I am planning to purchase a home for the first time within the next year.
3) My long term investments (currently ~$55,000)
4) Long term CD? Savings account?

I’m looking for a recommendation on where to direct that money. I don’t want it just sitting in my checking, burning a hole in its figurative pocket.
– Dave

If you’re going to buy a car and a house in the next year, you would be better off putting that $7,000 in with the $55,000 until you’ve securely completed both of those purchases and adequately furnished your house.

You’ll want to write a check for the car, the house down payment, any and all appliances you’ll need, and all of the household materials you’ll need when starting up. Those are going to add up to a lot of money, and you’re better off having plenty in the bank during this period than not having enough.

I’d bank all of it for now. I would probably just hold it in cash, as you’re going to want to tap it within the next year.

Q4: Advice for military son
My son is joining the Navy after he graduates in June. Do you have any financial advice that you think I should give him?

– Sam

If I were your son, I would put as much as possible into my TSP. I’d probably open both a traditional TSP and a Roth TSP and put 10% of my income in each.

I’d then send most of what was left to an investment house and live off of what the base can provide. If he’s unsure what to invest in, he should just stick the money in an out-of-the-way bank, like his hometown bank, and then spend some time reading up on investments until he feels sure about what to do with it.

When he gets out of the military, he will be incredibly glad to have a huge stockpile of money in the bank to start his civilian life.

Q5: Income for an expectant mother
I am going to be selling a house I own in the near future and making a profit of around $20,000. I am wondering what the best way to invest that money would be.

I have no debt other than mortgages for rental properties, but I am also expecting my first child in a few months. I have no savings, other than a $5,000 emergency fund.
– Kelly

If you have a child coming in the near future, the first thing I’d do is assess the actual costs of that child. Do you have all of the stuff you need for the child, like a crib and a good carseat and so on? Are you in good shape to pay for the costs of childbirth?

If you’re unsure about any of those expenses, keep that money in cash. Just drop it in a savings account or a checking account and sit on it until you’ve made it through the childbirth and the first few months of having a baby at home.

After that, reassess your goals. You may find that you want to invest that money in your child’s college savings, in which case a 529 account is a great option.

Q6: How much house?
What’s the rule of thumb you use to figure out how much house you can afford to buy?

– Vince

I would never take out an adjustable rate mortgage that any bank would reasonably offer, so I won’t even include that here.

I would avoid taking out a mortgage that caused my monthly mortgage payment to take up more than 28% of my take-home pay. In other words, if my family brought home $3,000 a month, I would avoid a monthly mortgage payment higher than $840 a month.

With interest rates being so low and with some savings for a down payment, you can actually buy a pretty nice home for that kind of money. You can get a $190,000 mortgage over 30 years at a 3.5% fixed rate and only have monthly payments of $853 per month, so you could pick up a $240,000 home if you had a 20% down payment.

Q7: Decision-making process for couple
My husband & I are in the process of buying our first house. We qualify for 2 grant programs (really they are no interest loans that turn into grants if you live in the house for >5 years). I work full time & am getting my doctoral degree in public health. My husband has his masters & is working towards his licensure while working 30 hours a week. We have significant student loan debt, but I am not overly concerned about it, aside from how it impacts our debt to income ratio. We also have an 18-month old & childcare is very expensive. My husband’s dream is to be able to stay home full time with our son. We did the math the other day & if he watches another child too, he will make more as a nanny than as a social worker once we account for childcare costs that we would spend if he was working. Also he is a terrific caregiver & I support him staying home 100%.

We recently had a very scary experience with a nanny who was otherwise wonderful (& we had to fire her so we are currently stuck without care) & we are stuck wondering if 1) my husband should quit his job now & provide childcare ASAP (but how would that affect our ability to secure financing for the house that we are under contract with?), 2) find a medium term solution for child care while my husband wraps up work, is further along with his licensure, & we purchase the house, or 3) some other option & don’t make so many huge life decisions at once.

We could do better in the emergency account & budgeting departments, but we have been so stressed lately–me in school & working full time, we both have high stress jobs, our child has a health care condition that is sometimes hard to manage– that we haven’t been able to do the simple things we want to do to improve our situation. I am confident that I could support us on one salary & we would still be able to pay bills, mortgage, save, and live comfortably. But we are stuck about how to decide what the best financial & personal decisions are & when to make them! Any advice??
– Brianna

A sharp drop in household income will have a negative effect on your ability to borrow money. If you already have the paperwork completed, then it won’t affect the already-existing mortgage, but if you haven’t done that yet, employment status and income level will be a part of that application and it will affect what you can borrow.

Aside from that, you sound like you’re in a situation that’s almost perfect for your husband to be a stay-at-home parent. He seems to be making a relatively low income, you’re making enough to potentially support everyone, and he could then handle all of the health care needs of your child and possibly take on more children to help with the family’s finances.

Since I don’t know exactly what “in the process of buying our first house” exactly means, but my suggestion to you is to go on the very low end of what you’re looking for. Pick a house that you can easily handle the payments on, even if it’s not your dream house, and focus on keeping your head above water and paying down the mortgage until your child is in school, then reassess the situation.

Q8: Financed purchases or credit card?
The furniture store near me (Homemakers) has a program where they will finance furniture purchases. How does that work? Is it like a credit card? I don’t want to make some dumb mistake.

– Charlie

The financing program of most large chain stores actually takes the form of a store credit card. You apply for that credit card with a limit large enough to cover the purchase. The special financing deal, whatever it might be, will apply to that portion of the card’s balance unless you violate the terms of that deal (usually by making a late payment).

In terms of your credit report, it usually shows up nearly identically to a credit card, as this is just another form of revolving credit.

If you’re talking about going into debt for furniture, I’d buy cheap used furniture and use that for a while before buying a bunch of new furniture.

Q9: Handling medical debt
I am wondering how to deal with medical debt. I am now on SSD and I have a medical card. I have several ambulance bills from 4 years ago, each at least $1200. I get $ 700. monthly and I have to pay $350 for rent, which includes utilities,cable bundle. I have 3 pets 2cats that 3 years old and my little dog that is 10 years old, pets total $75. month . I have all three since they were babies getting rid of them is totally out of the question. I have an old car from the 1989, runs good. insurance that I pay 6 months at a time. I have two meds that I have to pay full price $ 70. rest total about $35/$45. month. Medical care totals around $ 16. monthly, and I receive $46. monthly in Link ( food stamps) I usually have to go to food pantry once every 2 months thankful I’m not a big meat eater ,I might eat out 2x month which costs maybe $ 6 . Gas for car $40. month I don’t usually go very far. Then misc personal items totals maybe $ 30 depending wh at I run out of. I know it probably looks like have it easy ,but I have a hard managing money. I do have a payee for my SSD. She lets me keep my debit card. I am Bipolor with Schizo-affective disorder. I have been know to impulse buy, or if my sister or her adult kids go with me ,I some how manage to buy what they need over my need, I have tried budgets many times in the past, when i was married and working I did pretty good, my husband would check my budget at least once a month. On occassion I would still impulse buy. I had a good job as an LPN.

– Riley

The best thing for you to do is to call up the people you owe money to and negotiate a payment plan directly with them. Have your entire monthly budget ready when you make the call and directly explain to them that you don’t have very much money with which to pay, but you will pay something.

Most medical organizations work with patients in exactly your situation to come up with ways where they can get paid for the service they provide without having to use collections and without having to drown you financially.

Be proactive. Call them up and work something out.

Q10: Value of a better neighborhood?
How do you decide how valuable a better neighborhood is when you’re buying a house? If I’m looking at two basically identical houses, but one is in a good neighborhood and one is in a sketchy neighborhood, how much more is the one in the good neighborhood worth?

– Dan

It is simply impossible to put an exact dollar amount on a “better neighborhood” because so much of that value comes from what your personal values are.

Different personalities and different lifestyles are going to value a “safe” neighborhood differently. A family with several small children will value a safer neighborhood much more highly than a single guy, for example.

Personally, even without my family, I would put a lot of value on living in a safer area.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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 many, many questions per week, so I may not necessarily be able to answer yours.

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