Color of Money Live

Oct 24, 2013

Do you need personal finance advice? Or have questions about the new health-care law?

If so, join Washington Post nationally syndicated personal finance columnist Michelle Singletary, Thursday, Oct. 24 at noon ET for a live online discussion.

Send your questions in early.

--Fear of a shutdown has has many trying to prepare just in case

--When is it time to let go of your old car?

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Today's e-newsletter: The Bishop of Bling

Thank you for joining me today. I'm here to help. So let's get started.

I will probably apply for a home loan within the next year. Is it a good idea to get the credit card companies to raise my limit and therefore increase my available credit to debt ratio? Does this benefit out weigh the negative effect of them doing a hard pull on my credit report to give me the increase?

If you have outstanding debt, increasing your limit would technically look like you don't have as much debt compared to your limit. But as you point the company may do a hard pull on your credit file and that can lower your credit score.

Really why not put your efforts into paying off debt? If you don't have any outstanding debt there's not issue at all.

And you should know the best way to improve your credit score is to pay your bills on time. That tops everything. 

I was the person with student loan debt that felt like reducing monthly payments by $73 didn't feel very rewarding. I made the payment right after the chat :) It did feel better to see the reduced balance...I'm getting there!

Oh good for you!

It's a process. But once you are there -- debt free -- let's rejoice together!

Is it better to take cash on hand (leaving an emergency fund, of course) in order to pay off a mortgage or is it best to pay down as quickly as possible while ALSO saving/investing? Additional information: the mortgaged property is currently being rented out. Paying off the mortgage would mean additional income coming in every month while there are renters to put towards saving/investing. Thanks! Love the column and chats!

If you have the following, I would get rid of the mortgage:

-- You have a good emergency fund

-- You have a good life happens fund (for the things in life that happen such as a car repair. Mabye $500 to $1,000)

-- You are saving/investing well for your retirement

-- If you have children, you are saving/investing for their college education

-- You don't have other consumer debt -- car loan, credit cards.

If all of that is covered and paying off the house won't make you house rich and cash poor, I say go for it. Get that monkey off your back. And then, as you point out, you have income coming in. If you lose a renter you don't have to sweat how to pay the mortgage.

Dear Michelle, I know that you don't believe in shacking up. However, I do. I recently moved in with my ailing partner mostly to help him out financially by paying half the household bills. He wants to get married but I hesitate. My biggest reason for not getting married is because he is in serious financial straits while I am not. Because of his treatments he cannot work full time while I can and do. I'm just not interested in becoming fully responsible for debts he created before he met me and the ones that are accumulating daily due to his health. Also because his health is uncertain, he is very much focused on enjoying life now with little real concern about the future. My question is two-fold: Should we get married? Even though on paper things look dismal, love should conquer all, right? And how do I continue to protect my finances?

You should know that just marrying someone does not obligate you to take on their debts once they die. Just like your credit reports don't merge. Your partner's debt remains his debt. If you have not co-signed for any of the debt, you are not responsible for it.

So the debt isn't a barrier. Let love conquer all.

I am thinking about buying a condo. I can purchase about 2/3 of it in cash but will need to finance about 1/3 in order to keep my emergency fund, life happens fund and 1 year of expenses. (I am a very conservative with my finances) Would it make sense to take a loan from my TSP, rather from the bank. Pay interest to myself?

Good for you for having so much cash for the home. I would borrow from the bank. Let your retirment money be. Besides just so you know if you leave your job for any reason or get fired or laid off, that loan become immediately due. And there is still the tax break (although never a reason alone to get a mortgage).

I would get a bank loan.

So, here's my dilemma: I bought a home in 2006 so I am underwater (no refi opps - don't qualify for fed programs) and have a yearly adjusting ARM; I have a ton of student loan debt, and have credit card debt that is also overwhelming (stemming from my college years until now). I have a good job, but i'm living paycheck to paycheck. I feel so bogged down by all of this and keep trying to find ways to resolve it but there doesn't seem to be any good options. I"m in my 30's and don't want to waste away my life feeling "stuck" - but also don't want to make any hasty decisions. Do you have any advice for me?

First, I don't believe you are stuck. You are just overwhelmed and there is a difference.

So stop worrying about being underwater if you aren't planning to move. If you can afford your mortgage be happy about that. If you can't afford it, think about getting a roommate to help with the expenses. Also come up with a debt repayment plan. List all your debts starting with the one with the lowes balance. Why? So you can aggressively pay off the debt with the lowest balance and feel a sense of accomplishment. You will put all extra money on that top debt making just the minimum on the others. Once  that is paid off move to the next on the list.

Also really comb through your budget and see what you can cut to help with the debt repayment plan. 

I think if you come up with a plan, you will feel better.

This seems like something that would make intuitive sense, but I don't know the answer. Why does a check of your credit score hurt your credit?

It's a good question.

Having a lender pul your credit report to see if you qualify for debt means you are looking for debt. Having debt pulls down your credit score even if you pay it on time.

This sentence jumped out at me, "Also because his health is uncertain, he is very much focused on enjoying life now with little real concern about the future." The first half of that is great. The second, not so much. That would worry me a LOT more than the previous accumulated debt.

It jumped out at me too but I wanted to focus on the questions about the debt and marriage. But now that you brought it up. I understood it to mean the person thinks he may die. So he doesn't want to worry about money. I get that. I hope it doesn't mean the person is running up debt because he doesn't worry that he will have to pay it off. That's not okay.

And I would live to live. Because what if he/you do live. 

I do hope both persons are getting some counseling to deal with this.

My husband and I owe back taxes totally just under $50k (2006-2012). How should we begin bringing it under control if we've both been laid off. I am currently working part-time as a business owner/consultant and we are looking for jobs. Would the Offer In Compromise be an option? This is our only debt. Thanks!

Call the IRS. Talk to one of the agents to expore your options. It's pretty hard to get an offer in compromise if there is a chance the IRS can collect the debt once you are working again. But ask. You could get a very low paymetn plan until you find better work. Again ask. What you shouldn't do is pay some company to do what you can do yourself, which is to call and talk to the IRS. 

Marriage may change your partner's eligibility for Medicaid and/or other benefits. If his health continues to decline and he has no assets, he may become eligible for state-administered health benefits. If you're married, your assets will be figured into the equation and you may have to put him on your insurance to ensure that he keeps receiving care. Hospitals have social workers who can guide you through the pros and cons.

Good points. Thanks.

My good friend (female) is 63 years old, as I am. She had a perfectly good health insurance policy that she was happy with. She received a letter saying this policy will be cancelled because it does not meet the standards of the ACA. Right, it doesn't included maternity or birth control or drug abuse coverage, none of which she needs. According to the exchanges, a new policy will cost her $5,000 a year more, and with high deductibles, still would not actually cover much until she has already spent more than $6,000 on medical expenses. At age 63 and retired, she does not have an extra $5,000 a year to pay for something she does not need. She is in good health. Best bet: pay the fine for two years until she is eligible for Medicare?

I would encourage your friend to call (800) 318-2596 and talk to someone about her choices. She may qualify for subsidies. But there is more at risk than her paying the penality. If she doesn't have health insurance and she gets sick, she could be stuck with a big bill. By the way, many plans people got on their own covered services they didn't want or need.

Michelle, *of course* I agree with your advice to the person who asked about paying off the mortgage on a property that is currently being rented out...but...with a rental property, I'd say they need more of a reserve for repairs and such, in addition to the usual emergency and life happens funds. And if they don't pay off the mortgage, in general with a rental property you should keep enough in reserve to pay the mortgage for 6-12 months in case you are stuck without renters. I know that's probably not an issue for them since they're looking at paying off the principle, but it should be said, since otherwise you run a big risk of losing the property altogether if you can't rent it out.

You are right. I do recommend people with rental properties have reserves for repairs and should they lose a tenant. 

Thanks.

But... Neither my husband nor I tend to carry much cash around. It's so much easier to use a credit card. Fortunately, we're both careful with our budget, buy only what we need and can afford, and always pay the cards (we each have only one) in full and on time each month, so we never accrue interest. It truly is, for us, just about convenience. But when we had a credit check for a refinance on our home, which is literally the only debt we have, the current balances on the credit cards shows up as debt. Granted, they're not huge numbers because they mostly represent food, gas, maybe a vet visit for the dogs, a few dinners out, just normal living expenses, higher around, say, Christmas or a vacation. Does that hurt us? I can't imagine going back to the inconvenience of cash for everything.

No, you are fine. If you apply for a mortgage in the month you have a lot of expenses it might pull your score down a bit but you could just wait to the loan. So a few months before applying don't use the credit cards. Even so, what you are talking about isn't enough to bring your score down so that you end up in paying a higher interest rate.

Hi Michelle - I'm a single, mid-level professional with no kids. What is the recommended monthly or bi-weekly percentage that I should put away in my savings and Roth IRA accounts?

I get this question often. But to answer it you need to look at all your financial holdings to see if you are on track for your savings goals. And you need to decide what are you saving for? Do you need to build up your emergency fund? Life happens fund? Are you on track for retirement savings? Answering those questions will determine what percentage you need to save.

To get you started go to www.choosetosave.org. At least for retirment you'll input information about expected Social Security savings, pension, etc. and it will come up with an estimate of whether you are on track for what you want for retirement. 

I don't believe the person writing in about her 63-year-old friend is a real question. It sounds like a planted question to sow doubt and anger about the ACA. There are many things that my insurance covers that I don't need but that's the way insurance works. Things like coverage for prostate cancer. I'm a woman and can't get it! Should men be angry and refuse to be insured because women can get mammograms covered by insurance? This is small-minded, petty, hateful attitude that some people are trying to spread out there. Keep up the good work, Michelle.

You said it well and on point.

I have a friend who lost her husband suddenly two years ago. He was the bread winner in the family. It seems they were very generous when he was alive and gave gifts or loans of money to family and friends in need. Recently, she posted a question on facebook about asking people to repay the loans since her financial situation has changed. I can't help but think that it was more a gift if they didn't have anything written down about repayments. I am worried that even if a few friends repay the money that it won't solve her true problem. I think she needs to meet with a financial planner who can help put a plan and budget together so money won't become a problem. How do friends help friends without offering money?

I think you help the friend by telling her just what you just told me. Say you are concerned about her long-term financial health. Point out that she may or may not get the money back. (Probably not especially if it wasn't clear if the money was a loan. Besides I tell people all the time not to lend money you need back). 

And I do think meeting a planner could help her come up with a long term plan. You could assist her by helping find a fee-only planner.

Hello, maybe this is a question for a chat with a general building contractor, and maybe this is a question for a chat with Carolyn Hax, but you raised the issue of happiness a few weeks ago in one of your columns, so here goes. We moved into this big, old, shambling but lovely house off of 16th Street and overlooking Rock Creek Park fifteen years ago. We have children, love our neighbors, and love our neighborhood. But the house is a mess. Not just cosmetics (the 1940s bathrooms look better than the disco '70s vinyl kitchen), but roof, plumbing, electric, basement, everything. I love the house, but everywhere I look in it, it makes me unhappy. The house might sell for $800k, but it needs $600k worth of work. We have no credit card debt, the car is paid for, the kids are in public school, and we have two decent salaries. But the savings, right now, are entirely for retirement, college, and four months of rainy day. So how do I approach such a monumental problem, financially? I know it might make sense to chip away at each piece of the house incrementally, but I might not live long enough. Thanks for your advice.

Or you might live long enough.

You clearly do what you can afford. So keep doing what you can afford. Make a list of the home improvement projects you want to accomplish. List them according to projected cost. Then start with the smaller projects. Think about what you can do yourself to save money. 

You know the old joke how do you eat an elephant?

One bite at a time.

Same thing here. 

 

I've been frugal my entire life. I'm in my early seventies, have two pensions and just reached the half million milestone in my stock account. I like what you said about setting aside money for a luxury vacation each year for your family. I wanted to take a cruise after serious surgery, but health issues continue to be a problem. So how would you suggest I find ways to treat myself on an every day, weekly, or monthly basis? It's time for me to spend on myself, as well as others.

Oh this is such an issue I struggle with. That is why my husband and I decided to schedule every year a really nice vacation.

So think about what you enjoy. What do you like to do.

How about a subscription to the theater if that is something you like? We have a full scripture to Arena Stage in DC. LOVE IT! Not only do we get to have a date night we see plays we might not have otherwise chosen. It's a luxury  but another way to enjoy the fruits of our frugaltiy.

You can take one-day trips to local venues. Pretend to be a tourist in your area and see the things you might not as a resident. 

I agree that if you have been a good steward over your money, you can treat yourself.

I'm so sorry but time is up. If I didn't get to your question there is a chance I might answer it in my Monday Mailbag feature so be sure to check that out online. 

If you won't already please follow me on Facebook or Twitter @SingletaryM.

Take care and be financially safe.

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday. Her award-winning column is also carried in more than 120 newspapers. In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges.

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