Top Tips for Refinancing Your Mortgage

Top Tips for Refinancing Your Mortgage Many banks and financial advisors are trumpeting the benefits of refinancing your mortgage at a time when interest rates are fairly low. But there are some things to keep in mind which will make your pursuit of a better mortgage go smoother. * Look at your current situation – [...]

Continue reading Top Tips for Refinancing Your Mortgage …

From Frugal Simplicity.

Reader Mailbag: John Wooden

This past weekend, one of my heroes passed away. I’ll memorialize him with five of my favorite quotes from him.

“Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.”

“You can’t let praise or criticism get to you. It’s a weakness to get caught up in either one.”

“If you’re not making mistakes, then you’re not doing anything. I’m positive that a doer makes mistakes.”

“Do not let what you cannot do interfere with what you can do.”

and my personal favorite…

“If you don’t have time to do it right, when will you have time to do it over?”

I applied for a credit card with a zero % introductory rate in order to transfer the balance of another credit card with a higher rate (14.4%). Now that I have the new card, I noticed the introductory rate is only for 7 months and then the interest rates goes up to over 20%! Plus, the new card doesn’t even have enough available credit to transfer the full amount of the old card. What should I do? I assume I should just keep the old card and plug away at it. (I also plan to call and see if I can get an interest rate reduction.) But what should I do with the new card? Cancel it? I haven’t activated it yet.
- Kay

If I were you, I’d transfer an amount that you’re absolutely sure you can pay off in seven months, cut up the card, and never actually use it – just pay off debt with it. Since you’ve already opened the line of credit, it’s not going to make much difference at all in terms of your credit rating.

So, let’s say your minimum payment on your first card is $80 a month and you’ve been paying $200 a month to pay it down. That means you’re paying $120 a month extra. Transfer $600 to the new card, then each month, make the $80 minimum payment to the old card and a $120 payment to the new one.

What does that save you? It’ll only save you about $20, but that’s better than nothing, especially if you can use your bank to automate the bill payment.

Your summer reading list is insane! How do you manage to read so much?
- Evan

Three simple things.

One, I make sure I have a book with me everywhere I go. I usually just keep the book I’m reading near me throughout the day, but I also have a “backup” or two laying around here or there. I have a novel in the car, for example, just for these opportunities.

Two, when I’m idling for a little bit (like when I’m trying to coax the baby to sleep), I read. I don’t watch television. I don’t surf the internet. I read a book.

Three, I actually read fairly slowly and at the end of each paragraph, I mentally ask myself if I’m sure what I needed to pick up from that paragraph. I used to read much “faster” before I started doing this, but I was constantly backtracking and I often missed big chunks of what the book was about. In the end, I would get through a book at about the same speed I do now, but I get a lot more out of them now – my enjoyment factor is way, way up.

I’m a 26 year-old computer developer and am looking for some advice from you and your readers on mid-term savings ideas. I’m going to be taking a 2-year international assignment to China and my wife and I are trying to figure out what to do with some of our mid-range savings. We renovated a house over the past 3 years and are about to sell it and make roughly $30k. We have no debt other than the house. I have a vehicle provided by my employer (and will once I get back also) and we’re probably going to just let our family borrow our other truck while we’re gone so no major changes there. We have worked pretty hard to save up another $25k in my 401(k) and a Roth IRA. We’ve also got another $10k in general savings. With my international assignment I’m expecting to save anywhere from $40-$100k while I’m overseas. We don’t have kids (although we’re planning on it at some point soon) and are kind of thinking we might just try to pay for our next house with mostly cash. My question is what should I do with this amount of money over the next 2-3 years. Savings rates and CDs have such low interest rates and in that short a time-frame, I’m not very confident in the stock market either. I would consider a rental property but we’ll have no good way to manage it while out of the country. Thanks in advance for any suggestions you and your readers may have.
- Joe

Keep it in a high-interest savings account, one that you’ll be able to access from over there, and wait. If interest rates start to go up, you might want to rate hop a bit.

You’re right, though, there’s nothing out there paying good interest without taking on some risk. That’s because the Federal Reserve wants investors to be dumping their money into stocks and things like this that can spur the economy along much more directly. When the economy is humming along, interest rates go up and such stable investments look much better.

Still, I don’t think it’s worth the risk of putting money in the stock market right now unless you’re okay losing a good portion of it in exchange for a good probability of turning a profit. If you’re banking on that cash, then it’s not a good move.

I am curious how you budget for periodic charges that happen throughout the year. For instance, once a year, I pay for my car tags. Twice a year my daughter has soccer registration. Once a year we have our furnace serviced. I am thinking of adding up all of the charges for a year, divide the number by 12, and that is how much I need to try and set aside each month. I would like you input about what you do in your situation.
- Robyn

That’s exactly how we do it

Well, almost exactly. I tend to “front load” the year. Think of it this way: divide that amount by 6 or so, then make that payment each month for the first six months of the year.

Why do it that way? Those extra payments don’t come in evenly throughout the year. Sometimes, they come in bunches, and if they come in bunches early in the year, you don’t have enough saved up.

Aside from that, you’ve got the right idea.

I’m an avid reader. and I came across this article today on yahoo. For some reason I immediatly thought of you! I was curious as to what you would think of it. Not just as a way to save money but also as a way to network and meet new people!
- Ruth

That’s an extremely good idea. It’s one of those things that demonstrates the power of a local community.

In the end, it’s just formalizing how a healthy neighborhood works. If I help my neighbor watch his kids a few times for an hour or two, he helps another neighbor mow their grass, and then that neighbor helps me with snowblowing in the winter, we all save money. A time bank just makes it more formal, which makes it easier for people to join.

I’m all in favor of stuff like this because it simply saves people money.

What would be your advice to new bloggers when it comes to finding their voice for their blog?
- Gina

Write a lot. Nothing else solves issues of writing voice like writing a lot.

When you do that, pay attention to what people react to. Read the comments. Read the emails readers send to you. You’ll begin to figure out what things you write that readers like – and which things they don’t like. Use those clues to figure out what you should emulate and what you shouldn’t.

Over time, what will happen is that you’ll find it natural to write in a way that appeals to whatever readers you happen to have collected – and then you’ll find it easy to collect more readers like them.

My fiance and I are due to be married next February. We’ve consolidated our checking accounts, I’m about to buy a house (a duplex), and I just paid off all of my consumer debt (today! yay!). However, my fiance has a sizeable amount of debt, we both have car loans. I’m currently in re-payment of my student loans while he won’t have to begin payment until he graduates. I plan on going to law school in the fall of 2011.

We’ve worked out a plan for snowballing our debt payments and figure that we’ll have his consumer debt and both of our cars paid off in a little over two years. All the while, we will be saving (I hope) around $200/month for a rainy day.

In the meantime, I have roughly $5,000 in savings for emergency situations. I put it into a HSBC online savings account because, at the time, it earned something like 3% or 4% interest, much better than what I was getting at my credit union; also, it was out of reach (sort of) so I wouldn’t touch it unless I really, really needed it.

Currently, however, I’m only earning about 1% on my savings. I can’t help but feel that I can get a better return on my savings in the meantime. I’ve been thinking about maybe getting savings bonds, or perhaps a CD, but CD interest rates don’t really seem worth it to me. I don’t want to be too risky because I may feasibly need it for – you know – emergencies.

Any insight you could provide as to where I could invest it would be helpful!
- Melissa

As I mentioned above, interest rates are low right now across the board on savings accounts and CDs. There’s just nothing that can be done about it other than sit on cash and wait.

Why are they so low? The banks have no incentive to make the rates any higher because they can pretty much get as much cash as they need for about 3% interest whenever they like, so they can’t afford to pay out anywhere close to that while also ponying up for FDIC insurance.

If I were you, I’d just sit on the cash for now. You’re better off having it for emergencies even just earning 1% or so than having it at risk or having it tied up to just earn 2% or so.

Ha! I loved the “Life’s too short to drive a used car.”

I concur and have never purchased anything but a new car for the last two decades. I keep them until they start to fall apart though! I don’t finance and always buy a cost effective car that I can pay cash for. I currently drive a 2009 Honda Fit. I love it. I am very good at living within my means and would never drive a status car. But I do have a hefty commute and having reliable transportation is not negotiable for me.
- Aaron

You listed two things that new car buyers rarely do.

One, they rarely keep them until they start to fall apart. Proof? Go to your local dealership and look at how many 2004 to 2008 used cars – perfectly drivable for a lot of miles – are just sitting out there on the lot.

Two, they rarely pay cash for them. 73% of all new car purchases are financed, according to this article.

You’re basically buying new because you’re willing to pay extra to get those early reliable miles – the first 80,000 are usually the most trouble-free. That’s worth a premium to many people.

Aside from that, you’re buying how a typical late model used buyer buys cars, and that’s the way to do it, in my opinion.

Things are very stable at our house as we at paying down the mortgage and watching our net worth grow. I try to keep up with whats going on financially but I recently had a suprise in the credit card/credit report world. During the last few years its been hard to keep up with what the credit card and banking industry is doing. There is more detail to the backstory but the simple story is that I have a personal credit card that has a $15K credit limit. I only charge a few hundred a month and pay it off but this is my main card. I recently pulled my credit report and noticed that the card had the date and highest usage listed but the credit limit was blank. This made my debt to credit ratio upside down even though its not (600/0 is different than 600/15,000). Talk about skewing my credit score! I assumed this was a reporting error and called the credit card company requesting that they report my credit limit. The customer service representative confirmed that I have a $15K credit limit and that she would put in a note to have my information reported to the credit agencies. The kicker is that a few days later I got a letter in the mail saying that my credit card does not have a credit limit but is actually an open credit access line and an actual value is not reported to the bureaus. Say what?!?! Since when is a national bank credit card (with mastercard logo) with a specified credit limit actually an open access line? What do I do about my credit report that shows 600/0? Luckily I’m not trying to get any loans asap but its very frustrating to see that my should be almost perfect credit report is mud. (the mortgage loan is in my husbands name so it doesn’t show up and just like Cindy today our ‘joint’ credit card doesn’t show up. I recently had another card (my oldest card) with a $18K credit line closed on me by the bank due to inactivity which messed everything up and made me a very grumpy customer). So have you heard about other cards making credit limits actually credit access and not reporting the information? Is there a way around this or something else I can do to beef up my credit report?
- Patty

I’ve heard of that, but it’s usually pretty rare and only happens to people with very good credit.

I wouldn’t worry about it affecting your credit score. Instead of showing up as a credit card, it now looks more like a very small home equity loan to the score calculators. If you don’t have any missed payments or anything, your credit score is probably very good.

If you really want to check, you certainly can get a peek at your credit score, but with a credit report like that, I wouldn’t worry a bit.

My family needs an intervention. I’m 24, live on my own in Boston and am doing okay about saving, paying off my student loans ($700+ a month) and adjusting to adult life. I am a marketing writer and make $53,000 annually before taxes. I contribute to 401k, have about $12,000 emergency fund and have great credit. I have no credit card debt. The problem is my dad. He constantly assured us in high school that we would be able to go to the college of our choice – finances would not be a problem, and refused to speak to us about the situation. Even now he won’t talk about it.

Here is a breakdown of my student loan debt (below). The 2 PLUS loans, I write my dad a check for those loans and he pays the bill each month (In good faith – I can’t even check the loan balances). The website for our lender is very confusing because there are multiple loans (for myself, and my 2 sisters). Should I transfer the loans (for my student debt) under my dad’s name to my name? My dad is facing the possibility of prison sentence this coming fall. I have looked into the liability for PLUS loans and my dad keeps reassuring me that if he dies I will not have debt (he is only 56 years old). I am not sure the liability if he is in prison. I realize it is my education and I am liable for the loans – but I am not sure the best course of action to take financially. I am financially independent of my parents, live on my own, and do not need their assistance.

I have 2 Plus Loans Under my dad’s name that I pay him each month- and he makes payments to the leader, Nelnet:

Lender: Road Island Student Loan Authority, Loan Type: Consolidation, Monthly Payment: $294.64, Interest Subsidy: Unsubsidized, Current Principal Balance: $49,710.25, Interest Rate: 4.875 Fixed

Lender: Road Island Student Loan Authority, Loan Type: PLUS, Monthly Payment: $178.09, Interest Subsidy: Unsubsidized, Current Principal Balance: $13,319.89, Interest Rate: 7.500 Fixed

I have also have two government loans in my name (Federal Direct and Perkins that total $225 per month that I pay)… the balances remaining are $2000 ($50/month) and $15k ($175/month).

One sister is in college currently. I am advising her to move home and transfer to a local state school as a commuter student so she is able to work and still graduate with minimal bills. My other sister graduated 1 year ago and has a student balance of about $95k. My Dad told her this week that her payments will be a whopping $1,400 a month (she makes $40k a year in her job, lives with my parents, and has a $250/ monthly car payment, no credit card debt). Should she put her loans under her name? My dad has not been making payments on her PLUS loans so she has a lot of capitalized interest from the last 2-5 years.
- Anna

The absolute first thing you should do is check your credit report. Head over to the FTC’s website at http://www.annualcreditreport.com and find out for sure what loans are outstanding and in your name, because it isn’t clear to me which of the above loans you are liable for.

Any debts that you are responsible for currently repaying should appear on your credit report. If they do not, they’re probably debts that are in your father’s name and thus it is his responsibily to repay them, not yours, unless you choose to take on that debt for some other personal reason.

If you see a loan on there that you don’t have access to, then you need to seek out that loan and get full control over the maintenance and repayment of that loan. Do not leave such loans in someone else’s hands, no matter how much you trust them. Bad things can happen and you don’t need those bad events to have the secondary effect of wrecking your credit.

It sounds like – I’m not 100% sure on this – you have a personal arrangement with your father to pay him for the amount he owes each month on a loan he took out, the money from which was used to pay for your education. If that is the case, then your only obligation is the personal one to your father. The ethical and moral thing to do is to continue paying him, but it doesn’t appear that anything involving those loans will affect your credit.

Your sister is in the same boat. It appears as though she has a personal arrangement to pay your father each month for an amount equal to what he would be paying each month on that loan. With the amounts being discussed, however, you may want to consult a lawyer, because she would be giving him an amount each year that would exceed the gift tax (which means that taxes would have to be paid on that money).

Situations like this demonstrate why it’s very risky to mix familial and personal relationships and debt. It usually ends up poorly. If I choose to borrow money to pay for a child’s education, I’m going to borrow the money and then I’m going to give that money to my child for their education. There will be no lender-borrower relationship overshadowing our parent-child relationship.

Do you ever get depressed reading endless stories of people whose lives are in really deep trouble?
- Ellen

Not really, because I know that if someone has reached the point where they’re writing a question to me, they’re seeking a better answer for their situation.

I think society sends some pretty awful messages about money and completely distorts peoples’ senses of entitlement and wants versus needs. However, I already knew that before I started this site.

If anything, questions like that make me happier, because I see that people are trying to take control of their own situation instead of just blaming others and throwing their money at whatever’s new.

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.

Continue reading Reader Mailbag: John Wooden …

From The Simple Dollar.

Reader Mailbag: Project Ideas

I have more great ideas for projects than I ever possibly have time to complete.

I have a 2004 Santa Fe which is getting to be too small for my family. We have three kids now and plan to make it 4 and 5 in the coming years. (Though not within a year or so for the next one.)

It has some minor body damage (scrapes, small dents, etc.) but still runs well. And it’s paid off.

We are thinking about getting a mini-van and trying to decide when to make the move.

Should we drive this one into the ground and then make the switch or go ahead and get a new minivan now while interest rates are still low?

We have excellent credit — probably mid- to high-700s.
- John

Drive it into the ground, then make the switch.

Of course, while you’re doing that, make payments as though you had purchased a new van. Set up an automatic transfer of $300 a month into a savings account to simulate a car payment.

If you make the current vehicle last three more years, then you have $10,000 in that savings account with which to buy your next vehicle. If you’re buying a late model used vehicle, then you’re probably paying for most of it right out of pocket – no payments, no interest rates, no anything.

We did virtually the same thing recently, and I’ll talk about that in a post in the next few days.

I am interested in using a site like Mint.com to help me keep track of where my money is going and to help me save. My boyfriend thinks that I would be potentially putting myself in a position for easy identity theft with something like that. What are your thoughts?
- Lauren

Mint, Wesabe, and such sites have absolutely stellar security practices. My concern would have nothing to do with their actual security practices at all.

My security concern would be with the fact that no point of security is perfect and the more points of security you open your information up to, the more likely there is to eventually be a failure. Assuming all security points are equal, the person with one security point open is more secure than the person with five open.

Is Mint worth opening up your personal information to another security point? For you, it might be; for me, it’s not. I strive to minimize the amount of information availability, even with reliable places. At some point, every security system fails because human beings are fallible. Mint does not offer enough value to me in order to add that additional risk.

I’m struggling with clutter, too. But in my case, it’s just me (I live by myself at the moment) – so there’s no conflict with another human about what stays/goes. I do have some pack-rat tendencies and where I don’t keep things for sentimental reasons, I seem to keep things because I always have “I may have another use for that” thoughts. I am a big arts-crafts person, and so a lot of the things I hold on to are because I can envision using them in a project – but of course there are a million more projects than I’ll ever have time for.

The second reason I’m holding on to stuff is because I think of the money that was spent and I think about how best to recoup *any* money in getting rid of stuff. This has become a BIG problem over the last 2 years because 2 years ago, I closed my retail store and everything I didn’t liquidate then came home with me. I’ve gotten rid of a lot since then, but I still have piles… and the problem is, if I’m going to do anything other than donate stuff, it’s a lot of work.

Part of me wants to just donate all of it… and be done with the clutter… but I worry that 1) the donation place won’t really find a use for it (I have doubts that it’s useful to donate anything except for clothes, good furniture and appliances) and 2) I think about the money I could have recouped – but taking photos and putting things up on craigslist and/or ebay takes a lot of time (and ebay costs money). More about #1 – I am also fairly environmentally conscious and that’s part of what fuels my thoughts where I think I could re-purpose my own stuff.

Help!?
- Adeena

The best way to think about clutter is to view the stuff you buy as a complete loss the second you buy it. It’s a sunk cost – it’s water under the bridge.

The fact that you paid $20 for a DVD three years ago does not mean it’s worth even a cent right now. It’s only worth a cent if someone’s willing to buy it. That $20 is lost.

As for donating stuff, Goodwill only takes things that they think they can sell. On top of that, you can get a receipt for all donated stuff and use it as a tax deduction in 2011, which will save you some money.

A few years ago, I begna aggressively paying down debt. I paid it all off- except one credit line (unsecured) for $17,500 Cdn. I decided it was fine to leave it unpaid as I had no savings and started putting excess cash into a retirement account.

One thing that was of crucial importance to me was buying a home. In Canada you can borrow your downpayment from you retirement plan, with a 15 yr repayment schedule. So i did that, now I have a small condo (tres small) that I bought at the bottom of the housing market slump and a mortgage for $250,000 at 3.8% (rate is fixed until June 2014, then it renews at market rates- renewal is standard for Cdn mortgages). I did $10,000 worth of renos on credit and had to pay $4000 towards new elevators for the building which I borrowed from the credit line.

I make a whack of dough in my job, and my living expenses leave a lot of excess cash. I did some careful calculations though- if I lost my job (and I work for a stock brokerage firm (not in sales), it is a high risk), I probably could only make 70% of what I am currently paid getting hired elsewhere, as I lack academic credentials that other major financial employers screen for. It turned out that for $17,000 I could get a graduate school diploma in business (the first half of an MBA).

So I went into and had my credit line approved for additional student loan funds. When school ends (next March) in a year it willconvert to a term loan with up to 10 yrs to pay it back.

I have $10,000 in a retirement account, a $250,000 mortgage and $48,000 in debt. I can pay $1200 a month to the debt with no change in expenditures. I can cut another $500 a month out if I walk to work ($80 a mo), stop buying take out (it is way too high), stop driving (I belong to a car co-op $135/mo average usage cost) and get work to pay for my cell phone. ($100/mo)

But I wonder if I should maybe try to get a second job as well. I am scared I have no savings, just credit. Would you do that if you were me? Here’s the kicker- I am trained as financial planner – as if I had anything to invest.
- Danny

If I understand this right, you’re taking night classes to get your degree while working at a well-paying job during the day. I’m not entirely sure how a second job would fit into that equation.

Your focus should be on nailing solid grades and getting that diploma so you can eventually work forward towards an MBA. It sounds like you’re happy in your career and want the degree so that you can move forward. I don’t know the specifics of your field, but I would guess that if you’re working towards this diploma, you’ll eventually work towards the MBA.

So, no, I wouldn’t get a second job. I’d nail that diploma. I’d also live cheap while I was doing this and set up some automatic transfers from your checking account so that you can get an emergency fund built up.

My younger sister is finally graduating from college (5 years, 4 schools, 3 majors). Her degree will be in Business and she likes event planning and currently works for Lowe’s with some hopes to move up to Manager. I remembered reading a book review that you said you recommended for young woman entering the business world after school but can’t seem to find it on the website.

What book or books would you recommend that I get her as a graduation present? She is already pretty frugal, babysits and cleans my Grandma’s house for some extra cash. She is a typical blond who sometimes lacks common sense.
- Ryan

I would get her two books.

First of all, I’d pick up Your Money or Your Life by Joe Dominguez and Vicki Robin. It’s simply the best money book I’ve ever read because it’s, in the end, not really about money at all. It’s about life.

Second, I’d give her Michael Masterson’s Automatic Wealth for Grads. This book does a great idea explaining the things a self-motivated person should do straight out of college to build a strong financial position for life. It’s not easy right out of the chute, but it’s well worthwhile.

I have been at my current job as a event floral designer/event planner for a year and a half and I love it–I truly enjoy what I do. The only problem is that I bring home about $23000 per year working 40 hours a week (the maximum hours allowed by my employer). This is below my income potential (I brought home about $36000 at my last job in a different industry) and I know with my skill set and experience I could earn more. However, in my industry I would have to spend a much greater percentage of my time doing the parts of my job I dislike and find exhausting in order to increase my income, and I would have to find a different company to work for, as there are no opportunities for increased pay at my current job (advancement, yes, just not more money). It is also very difficult to find jobs in this specialized industry and many colleagues are currently out of work. So, do I leave my job and find one that pays more, even though I would be giving up a job I currently love? Or do I stay with the job I love and just learn to live on very little?
- Becky

This is the eternal problem. Quite often, the parts of our job that are the most fun are the parts that don’t bring home the bacon.

Take writing. If I just sat here and wrote all day, doing nothing but creating, I wouldn’t make a dime. It’s the other activities – talking to advertisers, negotiating book deals, dealing with comment approval, and so on – that puts the food on the table. I don’t like that other stuff at all, but it’s part of the equation. I have to do it in order to be able to spend swaths of my life doing the other things I enjoy.

At some point, you have to decide what your own balance is. Usually, the more “not fun” stuff you take on, the better you get paid. The more you reject it, the less you make, but the more time you get to spend doing the things you want. There is no “answer” per se – it’s about what each individual person wants in their life.

I am not sure if you have covered this yet before, but what is your feeling about Certified Pre-Owned cars. We are looking at buying a used car and it will be our (me, wife and 2 kids) only car. I commute to work every day on bike and the car is mostly for around town and road trips. I just want to know whether you think it is worth the extra money. Thanks!
- Jim

In my book, “certified pre-owned” is basically a substitute for a trusted mechanic. If you have a mechanic that you trust, you can take a car you’re considering driving to them and they’ll effectively “certify” it for you.

What you’re buying is a seal of approval saying that the automobile appears to be in good working order. Dealerships are quite happy to sell this seal of approval because it means they make more money for not that much more work.

Most used cars on a reputable car lot aren’t going to break down the second you drive them off of the lot or else the dealer’s reputation would be in the toilet. That doesn’t mean that “certified pre-owned” isn’t worthless – it’s often a guarantee against something they missed. But you can often get an effectively similar guarantee from a trusted mechanic.

Is it worth paying a thousand or two more for? If you don’t have a good mechanic in your corner, sure.

Would you replace a 15 year old dishwasher that still works but has a lot of rust on the racks (which I’ve heard can be painted over) because you could get a great deal on it now (that won’t be available in the future) rather than waiting for it to completely breakdown?
- Suzi

I’d probably replace (or at least fix) the racks, but not the dishwasher itself. I wouldn’t want to eat off of dishes that sat and dried on a rust-covered rack.

My solution would be to run down to the local hardware or RV store, pick up some liquid electrical tape and a good wire brush, stop by the grocery store and pick up some unsweetened Kool-Aid, then go home and brush as much of the rust off of the racks as I could. I would then pour six packets of the unsweetened Kool-Aid into the soap holder in the dishwasher, run the dishwasher with nothing in it, then brush the racks again (the citric acid in the Kool-Aid will help with the rust). Then I’d coat the racks in the liquid electrical tape to give them a cleaner, dishwasher safe coating.

Of course, I’m assuming there’s been no other problems with the dishwasher than the rusty racks.

I am entering a very transitional phase in my life and I am a little lost about how to go forward. I am getting divorced, I am graduating from college next May, I’m looking into getting a Master’s degree, my car will need replacing in the next 2-3 years. I just recently completed baby step 1 of Dave Ramsey’s plan. I have a small (about $1800) credit card debt, other than that I have a HUGE pile of student loan debt. Graduate school applications and the GREs will cost almost $1000, not to mention the cost of moving across the country or even overseas next year. Should I just keep making the minimum payments on the credit card and stockpile cash? How should I handle saving for a new car? I don’t mind driving an old car as long as it is reliable, I just don’t want to ever have car payments again. A stipend for a graduate student is barely above poverty level, so is it wise for me to consider going to graduate school when I have so many financial responsibilities? I’m just feeling like there are n things to spend money on, and only n-1 amount of money coming in!
- Ellen

For one, if you go to graduate school, you’ll most likely have forbearance on the student loans. You won’t have to pay them until several months after you actually graduate. Keep that in mind.

If you’re going to graduate school, do you really need a car? I was close with several graduate students who lived in the graduate student housing at Iowa State University back in the day and virtually none of them owned a car. The ones who did rarely used it for anything at all. Is it possible for you to go carless for a few years? There would be no payments, no insurance, and no registration costs, either.

If I were you and I were passionate about the field I was in, I would focus on getting into graduate school. If I accomplished that, then I would go absolutely minimal. I’d sell everything that wouldn’t fit into a bag or two, travel to that school by plane or bus, and live in the graduate student housing that existed there. I’d just forget about the car entirely until I actually needed it.

In a couple of months I’m moving from one side of Australia to the other, to an area with a lower cost of living and I hope, a better lifestyle for myself and my daughter. Estimated relocation costs have ranged from $2,100 – $2,900, and I want to spend the next month or so selling/giving away any items that I don’t really need to minimise the amount of furniture & belongings that have to be transported.

I’ve already decided that anything that is quite bulky (other than large furniture) and hard to pack, but not overly expensive to replace, I will get rid of and buy new/secondhand after the move. For this sort of thing I’m targeting bikes, pedestal fans, very cheap bookcases etc. Then there’s items that may be due for replacement anyway, for example I’ve been having some problems with my fridge and it’s way too small for us, so I’m going to give it away and buy a secondhand one in the new city.

I’m hoping that this approach is good common sense, but I’m wary of either going overboard and ending up having to replace a lot of items that I could have moved, or of paying to move things that I might have been able to do without or replace cheaply. Do you have any ideas on how I can assess my belongings for their ‘move-worthiness’?
- Jay

Have you already purchased a place to live there? If I were you, I’d go very small when I moved. Find a very small house that has just the bare minimum amount of space.

Then, I’d sell almost everything before I left. Get rid of all of it that doesn’t have personal value. Then, when you arrive, decorate with minimal cost using Goodwill and so forth and upgrade piece by piece from there if you see a need to do so.

This will drastically reduce the cost of moving, increase the amount of money you have before you leave (because of all of the stuff you sold off), and allows you sto start from scratch and re-do your house in a realistic fashion that matches the new life you’re trying to create.

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.

Continue reading Reader Mailbag: Project Ideas …

From The Simple Dollar.

Personal Finance 101: An Online Banking Primer

Katie writes in:

I was wondering if you could do an article on how to set up an online savings account? I remember you mentioned using them and getting a high return on interest, and I think I’d like to switch my savings account over to one. What kind of benefits/penalties have you come across?

The first thing to look at is what the differences between a “normal” bank and an online bank are.

With a normal bank, you have your usual checking and savings accounts. They issue you a checkbook with which to write checks and (usually) an ATM card to access your account. When you need to deposit something into your account, withdraw some cash, or make another transaction, you usually visit a branch location, visit an ATM, or use the bank’s online banking services.

With an online bank, all of the above is (typically) true, except that there is no physical branch location to visit. You conduct all of your business with the account via an ATM or via the online banking service.

What do you get in return for a lack of a physical branch to visit? You usually get a better interest rate than you would at a brick-and-mortar bank. You also usually get a very good online banking system and online bill pay service. Most online-only banks usually have minimal fees – no maintenance fees or other things like that. Typically, you get top-notch phone-based and internet-based customer service, too.

For a lot of people, that’s a trade they’re happy to make. The loss of a physical bank can be a big change, but the other benefits of the account make up for that.

How to Distinguish Between Online Banks
There are several things I look at when considering whether to use an online bank.

First, are the rates offered at least reasonably competitive? Banks change their exact interest rates all the time, so I don’t view it as a requirement that an online bank have the best interest rate in the land on a certain given day. However, the rate should be within a percentage point of that. I usually use BankRate.com when researching banks.

Second, is it FDIC insured? I look for the FDIC logo when I visit the website. I usually also follow up at the FDIC website using their bank search to make sure that the bank is registered with the FDIC. The FDIC is essentially insurance for your savings and checking (and CDs) that guarantees up to $250,000 of your account in the event of a bank failure.

Third, is it well-reviewed? Search Google for online bank reviews, particularly reviews of the banks you’re interested in. Get a diversity of opinions; don’t just rely on the first one you see. I have a series of online bank reviews ready to go for The Simple Dollar and will begin posting them soon (once I have a minor legal issue resolved with regards to them).

Fourth, does it offer all of the services you need? Do you need to have a paper checkbook or will online bill pay and an ATM meet all your needs? Do you need a very wide ATM network? Do you need easy access from your cell phone? Do you need Quicken compatibility? Do you have any other particular needs with regards to the account? Know what exactly you need with regards to the account and keep those needs in mind as you look at a few banks.

Fifth, once you decide on a bank, open the new account, but don’t close the old account. Transition slowly in order to ensure that you didn’t forget about any automatic payments or anything else like that. You may even choose to leave the account at your old bank open, particularly if it does not have any annual fees or maintenance fees, because of the convenience of the local branch.

Funding your new account is done electronically. You simply request a transfer using your new bank’s online banking system and the money moves automatically.

Good luck!

Continue reading Personal Finance 101: An Online Banking Primer …

From The Simple Dollar.

Debt Negotiation: Talk Down Your Credit Card Debt

Credit card debt is the number one form of debt in the country and every day more and more Americans are finding themselves in deeper and deeper with credit card companies. When the payments seem high and many and the interest rates are beyond comprehension, you may be looking for relief. Debt negotiation can bring [...]

Continue reading Debt Negotiation: Talk Down Your Credit Card Debt …

From Frugal Simplicity.

Interest Rates Don’t Matter If You Don’t Carry a Balance: Some Thought on the Cash-Only Debate

Earlier today, I read with interest the comments on this Get Rich Slowly article about Suze Orman and the “cash only” movement. In a nutshell, the article advocated (as Suze apparently does now) that people should abandon credit cards because the credit card issuers have been raising interest rates.

To put it simply, the raising of credit card rates shouldn’t matter to a person who has control over their financial life. If you don’t carry a balance on your credit card for longer than the grace period, it doesn’t matter what the interest rate is.

Based on the comments I read there, a lot of people do the same exact thing I do. I use credit cards for their convenience and the rewards they provide. I pay off the balance in full each month (I pay all such bills on the 1st and 15th of each month, actually, to keep it simple).

There’s one big problem with this plan, some will point out. It puts you at risk. What happens if you can’t pay the balance at the end of the month?

For starters, I never, ever carry a balance that’s more than what I have in cash in my emergency fund. I never even come remotely close. In fact, I never come remotely close to carrying a balance that’s more than what’s in my checking account. If I’m turning to my emergency fund, it’s a genuine emergency, not just a great sale at the store.

Which brings me to the second point – effective credit card use requires a lot of self-control. I am speaking from experience here – I learned the hard way about what damage a credit card can do if you don’t have self-control. It took a mountain of debt and a point that was perilously close to personal bankruptcy (while having a baby at home, no less) to force me to wake up to the truth – that a credit card without self-control is like a chainsaw in the hands of a toddler.

If you aren’t spending less than you earn month in and month out, you should go cash only, because cash provides the hard limits that are needed when you don’t have your spending under control. Credit cards are only beneficial to people who spend less than they earn every month, like clockwork. If you can’t or aren’t doing that, the drawbacks far outweigh the benefits for credit card use.

When the credit card companies raise interest rates, it’s not the financially stable people who are punished – they are often barely aware of rate changes because they’re unaffected by the changes. Instead, it’s the people who don’t have self-control – the people who carry a balance – who are punished by the changes.

Yet again, it’s a fantastic argument for living frugally, responsibly, and below your means – if you do so, the games companies play with credit card rates don’t affect you.

If you’re carrying a balance right now and your credit card company has just adujsted your rates, I have a simple plan for you: cut up your credit card. It’s doing you much more harm than good right now. Then, focus intensely on paying off the debt. Absorb as many frugality ideas as you can and try them in your own life. Knock down your life’s routines and build new ones – your old routines are the ones that brought you to this point. Seek out friends who don’t find their self-worth in the things they have. Seek out activities that don’t drain your wallet.

And gradually, you’ll find that credit cards don’t have to be dangerous – they can merely be useful tools – and that you don’t have to worry about rate changes.

Good luck.

Continue reading Interest Rates Don’t Matter If You Don’t Carry a Balance: Some Thought on the Cash-Only Debate …

From The Simple Dollar.

The Simple Dollar Weekly Roundup: Next Project Edition

Now that my book is finished, I’ve decided to embark on another big time-consuming project, but this one is a little different.

I’m a big fan of online banks. I think they’re an incredibly powerful tool for helping you with your personal savings. For a long time, I’ve wanted to talk about a slew of online banks, just to review all of the different options out there.

There’s been a problem with this, though. I don’t like to talk about products that I don’t actually use myself. I won’t review a book unless I’ve read it and thought about it. I won’t review a financial tool unless I’ve used it extensively myself. And I won’t talk about a bank unless I’ve used it myself.

I use ING Direct as my primary bank. I talk about it often. But I don’t mention other banks for the reason above, and I want that to change. There is a huge diversity in online banks, offering different features, different interest rates, different offerings, and different tools for managing your money.

Here’s my solution. Over the next several months, I’m going to open accounts at a bevy of online banks. I’m going to try them out, see in detail what services they offer, transfer some money in out, test their customer service, and close the accounts (if I don’t intend to replace an account I’m already using).

Then, once a week, I’m going to post a detailed review of that bank in an effort to outline clearly what distinguishes it from other banks. What do they do differently? Who is this bank most appropriate for?

So I’m going to open this up to you a little bit. What would you like to see in a review of an online bank? What features really matter to you and would cause you to make the move to switch to a new bank?

While you chew on that, here are some interesting personal finance articles that might interest you.

“Natural Inclinations…Are Hardly Ever Altered or Overcome.” Over the last few days, I’ve been enormously inspired by this little quote. (@ the happiness project)

Do you do your most important work first? I used to have a very organized morning routine, where I would do most of my “routine” tasks before starting the day. What I found is that I got my “routine” tasks done, but most of the real meat of my work – the creative tasks – didn’t go nearly as well. (@ unclutterer)

How to Change Your Motor Oil Changing one’s own motor oil is a tremendous way to save money – when you pay someone else to do it, you’re essentially paying someone $20 so you can sit in a waiting room while some guy unscrews a nut, collects some oil in a bucket, screws the nut back in place, then dumps some clean oil in the top. Why not do that at home where you can do something worthwhile while the oil drains and save yourself $20? (@ art of manliness)

What To Do With A Financial Windfall This is a great step-by-step guide to handling a windfall. If you don’t have a plan, windfalls can actually be a large negative disruption in your life, as we talked about a bit last week. (@ moolanomy)

Results of a Week Without Spending Can you go an entire week without spending any money? As an experiment, this family attempted to have a week without any spending and managed to get by only spending $3. Fairly insightful stuff. (@ pt money)

Continue reading The Simple Dollar Weekly Roundup: Next Project Edition …

From The Simple Dollar.