Free Financial Advice

Financial Questions from Our Visitors - Page 9

The examples below are from some of the visitors to Free Financial Advice. The questions below mostly represent word for word the questions asked by the visitors (sometimes including bad punctuation and spelling), but occasionally the questions will be edited on this page. And even though these people have shared their personal finances with Free Financial Advice, we have stripped out any names or other personal information to protect their identity. If you see one of your questions on this page and it makes you uncomfortable, please contact us and we will remove it immediately. Also, please note that any advice or suggestions made from this site are only suggestions and should not be deemed as professional, legal advice. Please see our disclaimer for more information. I apologize for continually mentioning our disclaimer, but this is a very litigious world that we live in.

Question:

I have a deferred compensation plan that I did not take out when I retired from State Service. I had $56,000 75% equity, l5% bonds, l0% money market , now with the same allocation it is down to 45,000. I was suppose to have distribution divided over 12 years beginning Jan 27, 2003. I do not need the money now and want to know if I should roll it over into a traditional IRA or change allocation and leave it where it is?

Please answer quickly, I do not have much time to decide.

Response:

I hope I got to your question in time to help. I'm not sure how old you are, but if you won't need the money until at least 59 1/2, then it is likely to your advantage to roll the money over to an IRA. By rolling it over (and waiting until you are 59 1/2) you will be able to have access to the money whenever you need it. You will also be able to have more control over your money. I have rolled over two of my 401Ks into E*trade and am able to invest the money in any stock, fund or money market I want. If you want more guidance over your investments, you could roll the plan over into an account with someone like Charles Schwab or some other full service or discount service investment advisor. Another reason it makes sense to defer the payments is so that you can time the withdrawals to correspond to the years that you face the smallest tax rates (which usually occur when you actually need the money).

Regarding your investment allocation. I think your allocations are okay (at 75% equity), but as the portfolio grows over the next 5 to 10 years, you'll probably want to reduce your equity exposure to 40-50%.

Good luck no matter what you decide.

Question:

Thank you for developing this wonderful site. I am going to take the time to go through it page by page and will put some of your ideas into practice. Please help me with a question, if you don't mind.

My wife and I have about $45,000 in the bank that we were going to use on a down payment for a house in about 18 months. We are carrying about 25,000 in credit card debts between the two of us. My wife is pregnant and will not be working after May 2003. I will need to get a second job (maybe a third) to make all of the bill payments. My question is this:

Should we use some of our down payment money to eliminate the credit card debt and build back our savings with my second job, or should I use the second job money to pay down the debt?

Any help you could give would be appreciated.

Response:

Your choice of whether to pay down credit card debt immediately or with your second job should depend on where you get your highest return. If you are paying high rates on your credit cards, then I would pay them down immediately. If you are getting zero percent interest rates on your credit cards, then I would pay them down with your second job. Somewhere in between the two rates and you need to decide which method is more beneficial.

Also, I would compare your credit card rates to the rate you are earning on the money you have in savings. If you are earning 1-2% on your savings account, and are paying 4-5% on your credit cards, then it makes sense to pay the credit cards off instead of earning 1-2%.

Also, another benefit of paying off the credit cards immediately would be that, from that point forward, you will be able to use the money you would have been paying to credit cards to save for your house down payment. It will also be easier to qualify for a loan if you do not have any credit card debt.

Question:

I was wondering if you want a FHA loan does it matter who you go through?

Response:

When applying for an FHA loan, it does matter who you go through to get your loan. Each company will offer different rates, different mortgage points and even different terms. Like any other loan, you should shop around for the best rate and the most favorable terms.

Here is a link to a site with more information on FHA loans:

http://www.fhalibrary.com/

Question:

I'm hoping that perhaps you can answer my question, or at least refer me to another web-site, or book, or non-profit...

My mother has declared bankruptcy, leaving me to pay off her outstanding debt that remains on an account I'd co-signed.  My question is: When my mother passes away, am I obligated to take over ALL payments on any other debts that she leaves? How can I protect myself from being responsible for all of her debts? I'd appreciate any referrals or suggestions.

Thank you.

Response:

I'm not a bankruptcy expert, but if you haven't cosigned for any of the other debt, then you will not be responsible for any of it. The only way that it could affect you is if you inherit anything of value from your mother that is tied to some of the debt. For example, if she has a home that you inherit, and there are secured debts against it (like mortgages or second mortgages), then you will owe on those debts. If her debts are to unsecured creditors (like credit cards or unsecured personal loans), then you will not be held responsible and the lender will have no recourse to you.

Question:

Hi there...I am in a 'dither' here and don't know what to do.....We are retired seniors...we have a debt of $25000 on Home equity loan and $10,000 credit card loan....We are in the process of selling our rental property and will clear about $42,000....

My home equity loan is for 5 yrs at 5.50 %...and my credit card is 0% APR for one year and then I will switch again to low apr....

My question is...should I pay off some bill and which one or should I keep the money in the bank and try to keep up the payments on my debts...If I go the whole term on the HE loan...I will be paying over $29000 as opposed to $25000 if I paid it off now....Please help me...any advice would be so much appreciated....Thank you....

Response:

First of all, I would pay off the credit cards in full. If you want to wait until just before the 0% APR expires, that would be acceptable because you could invest the same $10,000 in a CD and earn a few hundred dollars in the meantime. However, there is really no benefit to having credit card debt. And as soon as interest rates rise, the credit card companies will dispose of all the low interest rates they are currently offering on balance transfers, and you could get stuck with a much higher rate.

Regarding paying off the home equity loan, your decision depends on what else you would do with the money. Because the 5.5% interest is deductible on your taxes, the effective interest rate that you are paying is about 3.5 - 4.0% (assuming a 30-35% tax rate). If you are earning more than that on the money that you would use to pay off the loan, than you probably shouldn't pay off the loan. However, if you don't need the money and you are not earning at least 4% on the money, then you should pay off the loan in full. Think of it as a guaranteed way to earn 5.5% (3.5-4.0% after taxes), which is the interest rate that you would have paid on the loan.

Question:

We have currently paid off $14,000.00 on a house on the Central Coast NSW which we purchased for $162,000.00.  We owe $130,000.00.  The House is valued at average: $280,000.00

We would like to sell this house and move back to Sydney where houses are about $600,000.00

Mother in law will live with us and input $120,000.00,please advise us with any ideas you may have, can this be done given that mother-in-law earns $70,000.00 per year and we "running a business" are just paying the bills having had a bad year?

Response:

I'm not really sure how the Sydney mortgage market works, but if it is anything like the US market, then you shouldn't have a problem buying a house. If you sell your current house for $280,000 you should net about $140,000 ($150,000 less sales costs). Assuming you can roll the gain over into a new house without paying taxes, you have a 25% down payment on a $560,000 home. And it is much easier to get a 75% loan than an 80% or 90% loan. However, if you have good credit and your mother in law is willing to co-sign and pledge her income (and maybe even contribute to the down payment), then your odds are pretty good.

There are probably many banks that will turn you down, but I'm almost certain that there will be several that will give you a loan. The only decision you'll have to decide is whether or not to accept their loans. If you find one with good terms and a market rate, then accept it for sure, but because of your circumstances many of the offers you get may be for higher interest rates. Higher interest rates will make it significantly harder for you make the mortgage payments, so make sure you don't step into something you're not comfortable with. In the worst case, live in an apartment, save your money, and revive your business before applying. Also, if you do accept a loan with somewhat high interest rates, make sure you position yourself to be able to refinance as soon as things get better for you.

Also, when finding a loan, don't just check with your local banks. Find a good mortgage broker who can search hundreds of loan programs and who can negotiate with the lenders to get you the best deal. Look for a broker who is very aggressive, motivated and is an independent thinker.

Question:

I love my wife dearly but she continues to apply for credit in both our names without my input or approval. She is a stay at home Mom and I generate our only income. Yet she still seems to be able to be able to get credit with Art Van on furniture, Dell on a new computer, JC Penny on clothing, etc.... How can she do this without my signature and is there a way to block requests for credit presented against my income?

Response:

To answer your question, there is something you can do to protect your credit (even if it's from your wife). You can call the three credit reporting companies (Experian, TransUnion and Equifax) and ask them to put a block on your account that requires any creditor to get your specific approval before creating any new accounts for you. You would also want to call the credit card companies that your wife currently uses and ask them to either remove your name from the credit card account or to require your confirmation on each purchase. If they won't do this, you could close the account or possibly block the card from any future purchases.

Sorry it has come to this, and best of luck.