Color of Money Live (October 3)

Oct 03, 2019

Welcome to a weekly discussion about your money hosted by Michelle Singletary, nationally syndicated personal finance columnist for The Washington Post.

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Thank you for joining me today. You can submit your questions or comments by using the ‘ask now’ link. Although this isn’t required, I would like to know your pronoun as well as your city and state.


Why? I will often address an unanswered question in a future column. Knowing a little more about you helps me tailor my answer. Thank you!

Let's get started. 

I just wanted to celebrate with you and your readers: I've paid off $80K in student loans, sold a property which was underwater, got my budget under control, improved my credit score, and saved up a six month emergency fund. More importantly, all of this put me in good shape to adopt my little girl - with no debt! We're both in good financial shape, even though it took me a little over a decade, three jobs at one point, and a lot of mistakes. I'm not saying anyone can do this - I have more resources, help, and good fortune than a lot of people. But things can get a little better for everyone, especially if we help and encourage each other (like you and your readers helped and encouraged me just by being there). Thanks, everyone!! Now, I'm off to estate plan and start the little one's future fund, plus save up a down payment. : )

Wow.  A new parent (congrats) and debt-free (wonderful).

Thank you for sharing your story and journey. I love it! And nice way to start off the chat. 

And I'm from the Midwest, she/her.

Thanks for following a suggested direction!

Hi Michelle, I have to share a small victory. I was recently notified that my credit score dropped 20 points. It didn't matter, other than to my ego (first time under 800 in decades!), but I checked for fraud. Turns out it was a massive ($15K) credit card bill that increased my utilization from very low to very high. So why am I happy about that? Because I can pay it, without blinking, due to my very healthy emergency and life happens fund. And the bill was the result of life happening so hard it whipped me upside the head. We had two relatives and a cat die within a week, which involved 13 unplanned last-minute plane flights and a big vet bill -- all around a vacation we had already planned and desperately needed in the middle of all of the chaos. What the credit card bill reminded me was that I hadn't even had to think about money in the midst of all of that. When my relative went in the hospital, my husband told me to go, and I went. When his went into hospice, I told him to go, and he went. We were able to be where we needed to be, for ourselves and our families, without once dealing with the added stress of wondering how we'd pay for it all. And that, as they say, is priceless.

I'm so sorry for your loss and grateful for your testimony, and not mini at all!

He, 30, DC - Hello, I've been meaning to send this in for a few weeks now, but always became busy. I wanted to share my first hand community college experience after seeing many people in several chats raising doubts or questioning the overall community college experience. When I graduated HS I was admitted into UMD CP starting in the spring semester, not wanting to have a semester off I decided to enroll in Montgomery Community College for my fall semester to transfer some credits over. My initial intent was to be at College Park in the spring and at the time I did have the stigma in my mind that going to community college was for slackers or young people who could not cut it at a four year institute. I quickly learned that was far from the truth. Nearing the end of my first semester I became very conflicted on whether to go as intended to UMD in the spring or to stay at the CC. My fall semester at the CC quickly opened my eyes to the opportunity of staying the full two years. The class sizes were smaller, the professors actually cared about teaching and helping students, and the student body was filled with intelligent and engaging people. What's more, the CC had agreements with various prestigious universities (MIT, Georgia Tech, GW, & more) for automatic acceptance as long as you met certain criteria from your time at the CC. Was there an element of people who were perpetually at CC, sure....but that was a minority of people. I decided to stay and believe that my 18 year old self made one of the smartest decisions of my life. I ended up transferring to UMD CP 2 years later saving an enormous amount of money (~$12k), graduated within my desired field, progressed in my career, attended a top 10 in the nation graduate program, and now make a six figure salary.....and guess what...I have no college debt, nor any debt at the moment. My parents agreed to fund my undergraduate studies since I stayed in state and also went to CC saving money, and then my employer financed the lion share of my graduate program. What I want to stress is people should not make blanket assumptions of what is perceived to be the lesser of choices when going to college and that there are many routes to success. I hope this helps anyone who is conflicted about CC or unaware of the huge benefits. Thanks

Thank you so much for taking the time to detail your CC journey. I believe it will help others. 

I wrote about this: Community college should be a first choice, not a last resort

 

My friend has fallen on some hard times and needs to move back in with her parents. She has a lease on an apartment that runs through next summer and can't afford the rent any longer. She knows she's on the hook for the rent if she tries to break the lease, but she's seriously considering just moving out and not paying rent going forward after this month. Aside from the legal liability she faces if the landlord takes her to court to enforce the terms of the lease, is this something that can show up on a credit report? I've been telling her that she might ultimately avoid paying the rent due on the remainder of the lease, but I feel this is going to negatively affect her ability to get another apartment (or loans, or whatever) because it will be a hit to her credit rating.

It's unfortunate that your friend has to break her lease and her word but you know life happens. If she can't afford it there may be no other choice but to break the lease. You can produce money you don't have. If there is no other alternative -- get a roommate for example -- than yes break-in the lease may impact her credit rating if the landlord gets a judgment against her. It will tank her score. But you know what? That's the least of her concerns for the short term. If she's going to live with her parents there won't be a need for a landlord to pull her credit report. I would encourage her to stay with her parents as long as she can, even after getting back on her feet so that she can work on improving her credit score to the point that if she moves she can rent. And the best way to improve your score is to pay your bills on time and get out of debt.

Also, as time passes any court action will have less impact on her scores. She could also negotiate to pay off the debt to the former landlord, who may remove the negative information if she makes good on paying off the debt. 

Finally, even with a bad credit score it's possible to rent. Some landlords, if you provide proof, will take into account a hardship that led to previously defaulting on a lease. 

Please give your friend my best. 

I have been meaning to ask, what does this mean? Isn't all knowledge useful? By "wrong" knowledge, do you mean things that you think are true but aren't, or outright lies, or facts irrelevant to the circumstances, or what?

What I mean is often people think they know what to do based on things they've heard. So they believe they have the right knowledge and therefore make decisions based on what they know. But that information can be wrong. So, knowledge isn't necessarily power if what you know is wrong. 

For example, read my newsletter today about credit scores. We've been told -- myself included - that you shouldn't use more than 30% of your credit card available limit. But that's not really correct. For some even using 30% could negatively impact their credit score. In fact, people with a perfect 850 score use about 4% of their available credit. 

Read: Debunking a credit score myth: Forget what you’ve heard. Use much less than 30% of your available credit card limit

 

Your linked column about credit scores says that a bank might cancel credit cards that aren't used regularly. I have several cards that I rarely use, but I keep them because they improve my usage ratio and are available for emergencies. How often do I need to use a card to keep it active?

It may vary according to the bank or credit union. You might give them a call to see. I've had cards for years with no activity. Honestly, with a high enough score you don't need to keep around cards you never plan on using. 

agreements with GW, MIT, etc. for automatic admissions upon completion of certain course work. So this may be the best path for lots of people in lots of places, the poster's experience isn't universal.

And yet the point was that you shouldn't  assume  community college is not an option. Of course, everyone's experience is different and various schools may not have such agreements. But the poster is advocating what I try to advocate, which that community college can be a great option. Don't rule it out!

Hi Michelle! Mama bear living in DC area and wondering if you and your husband have paid off your mortgage already? I am down to the last $40,000 (15 yr 3.5)and debating whether I should slow down my extra payments and focus on upgrades. Some are necessary (water leak) and some are cosmetic--worst kitchen cabinets ever--after living in home for 17 years. My concern in paying down the mortgage is how long it will take to pay cash for the repairs. We live by WWMD so would love your thoughts.

Love this: WWMD.

Me, I would slow down to get the leak fixed. Water damage is the worst. And I would probably then jump right back in to get that monkey off my back. Once the mortgage is paid, save up that money and get the cabinets fixed. 

I was in a somewhat similar situation. Had some other financial priorities but hated the stains on my kitchen floor. Every time I looked at the damaged floor I wanted to cuss. But other things were more pressing. Waited and finally after several estimates got the floor fixed. Was the wait getting on my nerves? Definitely. But in the end I'm glad I did things in the order of importance. 

You will get there. Just be patient. 

And no, we have not paid off our mortgage yet. But when we do. They will hear me across country!!!!

Can the friend sublet the apartment?

Good suggestion. Could check. But often that would still put her on the hook if the tenant who sublet bails. But worth checking out. Thanks.

I rarely hear from my broker and have over a million dollars in my acct. he has put me in different funds, some do well, some don’t and haven’t for quite a while. I agree with diversificTion but he never suggest change when something isn’t going well. I have to suggest or ask to sell something. If I question this he says he’s doing the right strategy and seems annoyed that I am doubting his stratedgy. Not happy about this and he’s a family member. Barbra

Time for a break up. If you aren't getting what you pay for then you need to find another broker. I know it's hard to part with a professional that you are used to working with but you are not happy and you should be. 

If the tenant is in a high-demand area, the landlord might be happy to see her go. He can probably raise the rent for the next tenant. And as I understand it, (non-lawyer here), the landlord can only sue for his actual losses. If he rents the apartment to a new tenant the next month, he hasn't lost much. Landlords have experience with broken leases. She should go to him/them and try to work something out.

I agree. Talk to the landlord. Not sure about suing for actual losses. May be true. Also, consider you have to show the apartment was rented because, well, some landlords may not be honest enough to admit the apt. was leased. 

Don't just move out. You have to check with the local landlord/tenant laws to find out what your situation is. For example, in some places, the landlord has to minimize the tenant's responsibility by trying to let the apartment to someone else. In that case, your friend might only be responsible for the difference between what the new tenant pays and what she was paying. But to take advantage of that, your friend might have to provide written notice to the landlord. Lots of places have mediators to help with landlord/tenant issues. Lots of them. Just walking away with no forwarding address is pretty much the worst thing you can do because it precludes any chance to limit the damage.

I hadn't thought she might just leave with no notice. So thanks for making this point. 

She/Her DC I have read your recommendations for using fee-only financial planners for years now. I'm now in a situation where I have several saving goals (retirement, future kids, home renovation) in addition to new and existing expenses (mortgage, student loans). I'm generally a good saver and pretty frugal, but I have never consciously saved for something like a renovation. I was thinking that a meeting with a financial planner may be helpful to make sure I'm on the right track and setting realistic goals. But, in researching through NAPFA, it seems really expensive! For example, one seemingly reputable firm charges $250/mo for quarterly meetings and putting together goals and a comprehensive plan. I recognize the work that goes into this and certainly want to fairly compensate the professional, but I can't help but think I could save $3000 more toward future goals each year if I just go it alone. How do you know when it's right to spend the money on a planner vs. just keep saving?

I try to give me an idea of the cost of financial planner but it really depends on your situation and how much detail you want. Perhaps you should look for a planner who will give you an overall one-time plan and that may cost about $1,500. Or, just pay for several hours of planning rather than sign up for a monthly plan. 

But I will say this. If for a year in those quarterly meetings you get really good advice that helps boost your investments and provides a plan that ultimately gives you some financial peace that's worth something. 

Our cabinets were outdated, but like you, didn't have the priority to replace them. We opted to spend a weekend sanding them down, another weekend painting them. Paint cost a couple hundred dollars, granted our kitchen is on the smaller side. Made a world of difference. Still want to replace them someday, but for now they'll do.

Good idea for the interim. Wouldn't be for me because I'm not a handy gal but sometimes you make do until you can do what you really want. 

Sorry to hear of the poster's experience. Even though I know Michelle doesn't like percentage based brokers, I have been with one for years and I know I have done better than if I went on my own. He provided good advice re my 403b from another job (even though he didn't get compensated for that) or with my current 401k. Now that the 403b is an IRA he does receive a percentage of that, plus whatever else I have invested. Looking back on it, I easily could have been one of those people panicking during the respective ups and downs and made dumb choices. And he responds immediately. So, please find one that you like.

If it worked for you, I'm okay with that. The point is you knew the cost and decided it was worth it to you. 

My husband retired last year. He waited to max out on Social Security. I had to give up work a few years ago due to serious illness, but we just paid off our house and have no debt! One thing that is so important to that success is a very similar attitude towards saving. We never had a fight over money, hate debt, and always had adequate savings. We maxed out our IRAs and 401ks. We always had fun along the way. I so appreciate your philosophy on family finances. We always feel reinforced by your articles. Thank you.

You just made my day. As have all the folks with their testimonies. And so happy for you!

If the landlord is going to lie in court, that's a whole different world. There are certainly ways to find out whether an apartment is occupied, like whether the post office is delivering mail there. Many law schools have student-run clinics that offer free or cheap advice. A good place to start.

If you qualify for the help, definitely a good place to start. 

But if it's wrong it's not really knowledge, is it? It's error or delusion. So you mean "correct knowledge" or "accurate knowledge," right?

Do you really want to quibble with me on this because you are missing the larger point. The saying is, "Knowledge is power."

I took that to turn it on its head. 

What I'm trying to do is get people to challenge what they think they know to make sure it's right. And knowledge can just mean the "condition of knowing something." Doesn't mean it's the "correct" knowledge. 

A good friend of mine asked me to be the executor of her estate and I have agreed. We plan on sitting down in a couple of weeks to go through things, but what kind of info should I get from her during this conversation? I figured a general discussion of her wishes (including finding out who she's appointing POA for finance / health), contact info for her attorney who's drafting the docs, asking her where she plans on keeping the estate docs so I can access them if needed and asking her to compile list of important accounts / assets / family members to contact (not to give to me, but to keep with her estate docs so I have the info if needed). Is there anything else important that I should know or ask her to put together? Thanks in advance!

Can you be my executor? 

I'm actually writing about estate planning for my Sunday column. But you've covered the major things. Just make sure she's written it all down. Perhaps you could go with her to the attorney and ask him or her what additional things you need to know. Include any funeral planning as well. She should also create a "letter of instruction" that would give you direction. 

Having a higher credit limit helps you maintain a lower utilization. Is there a downside to having too high of a limit? I normally skip the "update your income" pop ups to avoid having higher limits (because they already seem insanely high to me) but should I actually be answering these? I always pay my credit card bills in full each month, but put most expenses on cards to get the points, so my utilization is often around 10% as I approach a payment date.

You know you don't have to accept a higher limit. Just say no. Plus, if you pay off your bill every month doesn't really matter what the limit is.

Virtually all community colleges have agreements with most 4 year universities. Yes, it's wise to check instead of assuming, but it would be a rare community college that didn't have an agreement with a university to which you wanted to transfer.

Thanks. 

I've seen advice on maximizing your 401k by starting early (20s) or doing catch up contributions in your (50s). But what if you are starting in the middle (30s and 40s). What is the strategy to catch up to the 401k millionaires? Feels like you are too late to get the benefit of starting early and too early to have the increased earnings that let you make huge contributions.

Never too late. The benefit of early is that you don't have to save as much per month/year because time is on your side. 

Laters, the tax advantages -- after 50 anyway -- help you because you can have more money working for you to catch up. 

In the middle, the percentage you have to save is higher but if you can max out you are still 3o or 20 years from retirement, which gives you enough time to do well with your investments. Don't worry about at what point you start. It's a moot -- not moat -- point. (If you've been following Twitter and he moot vs moat discussion, you'll get the joke). 

Anyway, start where you are. Save as much as you can. Aim for 15%, which can include any employer match. The things is do what you can. If it's not enough well as you get closer to retirement you have to make decisions that may not be ideal but still can help you have a good retirement when you stop working. 

The professors do not have to “publish or perish” and can devote themselves to the students. The best profs I ever had were at MC. I go 58 credits from Montgomery College, transferred to UMBC, and got a graduate degree from GWU. I had classmates at MC go on to Harvard and other top schools. The savings were incredible and the education wonderful.

Thanks for your CC advocacy. 

yes, I meant to shout. I was my late husband's executor and without passwords (he died suddenly but not unexpectedly), I had a terrible time getting access to accounts and other important info that was in the cloud. Some of it still molders there because I don't know it exists or how to access it.

Yes, yes, yes. Forgot that. 

Michelle, I'm in debt for the first time and I'm very excited about it. I have a mortgage! One that is much smaller than what I could "afford". Quotes because they bank was ready to give me a ridiculously large loan. I've waited a very long time to buy my first place and I know that it was the right decision both financially and emotionally. Thanks for your good advice. I'll get to paying down my mortgage (at a ridiculously low interest rate) as soon as I've fattened up the retirement and 529 accounts.

This is most certainly a Thursday Testimonial. You have a financial accomplishment -- you're buying a home. 

I'm very happy to celebrate this move and your plan. 

Missed you live last week, but wanted to suggest that people get a very detailed budget for the new area. We moved from San Francisco to Florida 15 years ago. I called friends in the area asking what their utilities cost, got insurance quotes, things like that. Florida is much cheaper than CA for housing, but property tax rate and car insurance doubled. We took a pay cut and still came out ahead but we would not have been comfortable if we hadn't truly known the cost. We are happy here 15 years later, but we know we can never go back. If you plan to return at any point, save accordingly so you can get back in the pricey house!

Never too late to share experience and keep a certain conversation going. Thank you!

Thanks for all of your chats and great information. I have good credit (765) without any credit card debt, but I keep hearing that I should take out a credit card and put small purchases on there to pay them off to improve my credit history. I thought regular paying my mortgage, student loans, and car payments would be enough to move my credit score over 800. I'm wondering if that is even important and a step I need to take.

At 765 you are just fine. No need to use a credit card if you don't want to. 

It is worth reading the lease. She may not be on the hook if the complex can find someone to take her unit, or may just be on the hook for a small fee. and in hot rental markets, that often happens. So it is worth talking to the manager. Some buildings have wait lists and can fill your unit quickly. But if she slinks out without notice, its harder.

Many of you are offering this same advice. Thanks.

update to my post. Yes, although the original algorithm was a little hard to follow re cost, I am now at a point where it is a percentage. I respect his judgement and also have convos about mortgages, health care savings, and other financial decisions. Finally, he checks regularly to see how the respective accounts are doing

It appears you found a good broker. 

All the correct knowledge in the world isn't helpful to your situation if it isn't the right knowledge for your situation.

Yes!

This is Washington. We don't know how to do anything else.

Lol!

Then again, I open the door for all of you to challenge me so thank the person for asking for clarification. 

Can you address who should have a trust or things to think about as to whether you should have a trust? My parents (70s) are insisting they should have trust to avoid probate when they pass away. But it seems expensive to set one up and they don’t have a large estate outside their home (paid for)

I'm won't be covering trusts in the column but definitely a topic for a future column. Anyone with doing a trust experience good and bad? 

I am so excited that this month I'll be paying the last payment on my car loan. Then I plan to devote a good chunk of that money to a savings account to save for a down payment for the next car -- which hopefully will not be for another at least 6 years!

Yeah!!!

I in 2003 I lost my job. Had no paycheck. I told my apt complex I couldn't pay my rent for more than one month and had to break the lease. You know what they said? Sorry to hear, ok. Good luck to you. No further implications. Tell them your situation and see what they say.

Wow. You never know. Appreciate your story.

How do I know what the credit card limit that the FICO scores are calcuating on are? I always thought credit cards assigned your limit on a particular card individually, so one card company might say your limit is $5,000 and another $1,000 or $10,000. But it seems like there is a standard number that is your "credit limit" across the board? And how do I find that out is it on my credit score report? DC, She

This is not a stupid question. Personal finance is complicated.

So, when you are approved for a credit card your lender -- bank or credit union -- will tell you how much your credit limit is. That limit is then reported as part of your activity to the credit bureau. There is no standard limit. What you might be referring to or misunderstanding is your credit utilization rate, which is how much of your credit limit you are using. Read the newsletter I wrote today and reference earlier in the chat. That should help you understand more. 

Glad you asked. 

There are so many questions left and I need to go. I feel so bad because I very much appreciate your stopping by for the chat and I hate not getting to all of your questions. 

But I promise you I read everything. And when I can, I'll take a question or two and answer in my column. If you can't wait, please come back next week. 

Thanks for joining me today. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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