Free Financial Advice

Financial Questions from Our Visitors - Page 1

The examples below are from some of the visitors needing financial help. 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 recently was offered the opportunity by my mortgage company to pay half of my monthly mortgage payment every two weeks. This payment process allows the bank to have my money two weeks earlier, and apparently builds my equity quicker and decreases the life of my loan. I also heard by some financial expert on TV (sorry, I forgot his name....) that it is wise to pay your credit card bill in the same fashion; half of your normal monthly payment would be made every other week.

If this is wise, would you please explain, in simple terms as you have done in your web site, how this would benefit the borrower. I would like to explore if this is an option I should take advantage of.

Response:

Basically, the reason you benefit by paying your loan off every two weeks instead of once a month is because you are effectively making 13 monthly payments each year (26 bi-weekly payments x 1/2 payment each = 13 payments) instead of 12. By doing so, you pay off your loan quicker. Another benefit of paying your debt on a bi-weekly basis instead of once a month is that it can provide discipline to your budget, make for smaller payments and, if you get paid bi-weekly (instead of twice a month), it can correspond to your earnings.

A con to your lender's "offer" is that they likely charge a monthly fee to use the bi-weekly program. If you don't have a prepayment penalty on your loan you could get the same effect by making an extra monthly payment once each year (or more often to pay it off quickly).

Also, if you are weighing this option for both your credit card and your mortgage, you should almost always focus on paying down your credit card first before making extra payments to your mortgage. Your mortgage is tax deductible and likely at a lower interest rate.

Question:

There is a company on my credit report that has a zero balance and is still open, however I don't recognize the name and I want to close the account.

Where can I start to find out who this company is and get that account closed?

Response:

It's not uncommon at all to have unrecognized names on your credit report. As long as the balance is zero, it shouldn't affect your credit (in fact, it could give you a better score by making your credit look more established). With that said, I understand why you want them to update it with a "closed" status. To do so, you'll have to find out who the company is and then write them a letter asking them to report the account as closed to the credit reporting agency. It is sometimes difficult to determine where the account came from, as the name on your credit report doesn't always correspond to the company that gave you the credit in the first place. Here are some tips I would use to track down the company:

Look at the date the account was opened and try to think back to who gave you credit at that time

Take the name on the credit report and do a search on www.google.com for that name and variations of that name. See if any of the results look familiar to you.

It could be an old credit card, a department store card, a bank account, a student loan (even one that has since been resold), a car loan, a mortgage or numerous other types.

If you can't determine who the creditor is, write the credit reporting agencies that are reporting the account and ask them to either identify the creditor or remove them from your report.

Question:

I am under the age of 59 1/2, but I need to take money out of my 401(K). I will not be able to pay it back, so it will not be a loan. I know if I do this I will have a 10% penalty. Are there any other options, besides taking the money out of the 401? Can I rollover some of it into an IRA and take a distribution from there?

Response:

My knowledge of the tax laws is not nearly as good as a tax advisor, so I'd suggest that you contact your tax advisor or accountant before you make any final decision. With that said, there are several ways to tap into your account early without a penalty. They include disability, buying a home for the first time and paying medical expenses that are more than 7.5 percent of your adjusted gross income. If none of these apply, there is one other way that I know of to withdraw money, but it's kind of complicated. You could "retire early" and take equal distributions from your 401K each year. The amount you can withdraw each year is dictated by your age. For example, if you are 50 years old and your life expectancy is 80 years old, then you could take the money out in 30 equal payments. When you hit 59 1/2 you are free to use the money with no penalty. I'm not sure if that would help you, but if you want to learn more about it, visit the IRS website.

Question:

I have a 401k and just paid $20k on my mortgage to reduce it.....do you think this is wise as my interest rate is 5.75%.i now have $125k left on the loan or would it have been better to invest the money in stocks/bonds.I have 23k left and have no ideal how to invest it.I want to take a slight risk but the market is so bad now I think it may be better to put the money in a 6% municipal bond. Would it be better to just buy a good stock like Wal-Mart or buy a diversified mutual fund index maybe?

Response:

The interest rate on your mortgage is very low indeed. It probably doesn't make sense to pay it down faster than you need to. In making your investment decision, here are some points to consider, but remember, the decision is yours:

The interest on your mortgage is tax deductible so the 5.75% rate is really closer to 3.5% (assuming a 40% tax rate) after taxes.

In making decisions as to where to invest your money you need to take into account your risk profile. If you have a long time before you need to spend the money (or before retirement), you should take a higher level of risk (stocks, mutual funds, bonds). If you are very uncomfortable losing any amount of money, you should take a low level of risk (bonds, money market or even paying the mortgage down)

If you can afford the risk, stocks are the best return over the long run.

The fact that the market has done horribly for the past 2 1/2 years does not mean that it will continue to under perform. In fact, history suggests that the market will likely outperform over the next five years as a recovery has already begun.

If you are going to invest in stocks, I would suggest mutual funds, as they diversify the risk that any one single stock can have on your portfolio. You can research mutual funds easily online through websites like finance.yahoo.com or other sites.

You could invest half the money in bonds and half in stocks, or any combination thereof, to meet your risk level. You could also buy a few shares of your favorite stock and add it to your portfolio.

Don't do anything that you're not comfortable with.

Question:

My husband and I are inheriting a substantial amount of money (enough to put 20% down on an averaged priced house ($190,000.00) and still have approx.1/2 left over. We are unsure if buying a house is really going to benefit us financially. Right now we are only paying $575.00 for a two-bedroom apartment in a somewhat good area. Would it be better to just keep the money in the "cash-management" account and spend some of the interest (if we were to choose to spend any of it) rather than spend 1/2 on a house? I am the bread winner of the family and earn around $41,000 a year. My husband is on social security disability and a stay-at-home dad for our son who is My husband is a bit nervous about making such a big purchase and having only 1/2 of the inheritance left over for security. He is afraid that house payments along with utilities and anything extra will just eat up all the inheritance money. Would keeping all the money in the cash-management account be a better choice in the long-run rather than taking and spending half on a house purchase?

Thanks for any advice you can give....

Response:

I can only give you suggestions as to what to do, but from your email it sounds like you are already leaning toward saving the money rather than spending it on a house. Here are some points to consider, but the decision is ultimately yours:

It sounds like you are comfortable where you live and will likely be able to save more money by not buying a house (paying $575 for rent is much cheaper than paying a mortgage and all the costs that go with buying a house)

Buying a house has lots of hidden costs including closing costs, new furniture, appliances, blinds, landscaping, utilities, etc.

You can always change your mind later and buy a house

On the other hand, will leaving your money in a cash management account create much interest income? Depending on the house that you purchase, you may acquire more wealth over the long run if the house grows in value faster than the money in your cash management account grows.

Rather than leaving all of your money in a cash account, you can diversify it into other types of investments. Also, investing in real estate is a diversifying investment in itself.

Also, be careful before you spend the money you inherit. You may have to pay more taxes on it than you anticipate. You may check with your accountant to learn more about this.

These are all things to consider and neither decision you make will be the wrong one.

Question:

I am coming up to my graduation day after three years at university. Like most students I need to pay off my student loan. This is not a problem, what concerns me at the moment is my overdraft facility with Barclays bank.

On the day of my graduation my account automatically turns from a student account to a graduate account. This means the interest on my overdraft goes from 8.9% to 15%. With the graduate account comes the option of turning the overdraft into a graduate loan ( at around 9% interest). Would it be advisable for me to take a loan from another company at a lower interest rate, or does the graduate package offered by Barclays really cater specifically to the needs of new professional people.

Thank you for your time and consideration.

Response:

9% is not a terrible rate for a loan to someone who's credit is not yet established. Before accepting it, you may want to check into some other sources to see if you can get a more favorable rate. If you can't, it probably makes sense to convert the overdraft into a graduate loan.

Some tips on how to get better loan rates include:

If you have a house or other real assets to use as collateral you can get a better rate.

Sometimes by getting a co-signer for your loan (for example, your parents) you can get more favorable rates

Also, don't just try banks to get a loan. You should also check out other lending companies.

Question:

I do not know if you can answer a question for me but if you can that would be great. I have a carp payment of $389 per month for the next 3 1/2 yrs at 11% interest. I have a line of credit loan with payment of $300 per month with balance of $14,200 at 18% interest.

My credit cards are as follows:

Visa $6,400 balance 12% $180 minimum payment

Visa $6,400 8% $135

Visa $5,200 16% $100

Discover $7,150 19% $150

Store $650.00 18% $25

Store $850.00 18% $35

Mortgage. payment including Home Owners Fee per month is $875.00

My salary is $34,200 per year.

I will be receiving $18,000.00 sometime in June thanks to an inheritance.

My question is what bills should I pay off I am having a hard time trying to decide because I am financially strained and I know I need to get rid of some of my debts. Plus have some money left over. I was thinking of paying of my car, but I am not sure if that is a good idea, then I decided to use the money to pay of some of my credit cards.

The point is that I would like to pay down on my debts, and be able to save money monthly. I have a 401k at my job at this time.

Please help I do not know what to pay of first to help me in the long run.

Response:

It's difficult to tell you exactly how to manage your debt, but I'll give you some suggestions (see below). If you need more information you might want to contact a debt specialist service. I have some links on my site that point to debt consolidation, loan companies and credit companies.

Suggestions:

Don't do anything with your mortgage. All my calculations below exclude your mortgage.

You currently have $54,000 in debt (excluding mortgage), $1314 in minimum payments, and are paying an average interest rate of about 14.3%

I suggest paying down the highest interest rate debt. With the $18,000 inheritance, I would pay off the two store cards at 18% ($650 and $850). Then I would pay down the 19% Discover card. After that, I would pay the remaining $9300 toward your LOC.

By doing this, you will reduce your minimum monthly payment from $1314 to about $900. You will also have lowered your interest rate from 14.3% to about 12.3%.

You should actively try to reduce the interest rates you're paying. Do this by refinancing your LOC (but not if your rate is much over 9-10%) or by finding enough low interest credit cards to transfer the rest of your balances to. If you have bad credit problems, this will be difficult and I would suggest trying to rebuild your credit so that you can steadily reduce your interest rates over time (until you are able to pay off your debt). Remember, the minimum monthly payments that you make to a credit card are really only paying for the interest, so to pay them off you need to pay more than the minimum.

If you feel too overwhelmed by your debt, you should discuss your options with a debt consolidation company or some other debt management program. In some cases they can help you renegotiate your debt and even expel some of it. Keep in mind that if you have good credit that some of these debt programs could hurt it.

I hope this helps, and I hope you are able to get on top of these debt payments. Don't give up!

p.s. I've attached a copy of a simplified debt analysis spreadsheet that I created for you that may help you understand the impact of your debt payment decisions.

Question:

Hi, I want to get some financial advice. If we have extra cash available is it smarter to pay off our mortgage which is currently at 6%, invest money in stocks and mutual funds, or purchase a new home? We have no other debt other than our mortgage and currently make a six figure salary. But a new home will stretch us on a monthly basis with the increased costs overall of a larger house.

Response:

The best financial advice for you is to go with what feels right to you. Based on your email, I would recommend either investing the money or using it to purchase a house. Here are my reasons:

A 6% rate (I'm assuming it's a fixed rate) is a great rate. I would predict that any money you invested in stocks, mutual funds or a house would return much more than the 6% over the next several (5+) years.

When weighing the home vs stocks/funds: By buying a larger house, you are likely to spend a lot of the money upgrading furniture, paying closing costs and on other miscellaneous costs that won't return much value to you in the future. That's fine if the reward of having a larger house is worth it to you. But if you really want to get ahead in the long-run, investing the money in stocks or mutual funds might offer more reward.

You mentioned that a new home would "stretch you" on a monthly basis. By investing the money, you will not be stretched financially and you will always have the option of buying the larger home with the money that you invested.