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Financial Questions Answered

See Answers to Financial Questions Asked by Our Visitors

The examples below are from some of our visitors that needed financial help. 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.

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Question:

Help!!

I am in need of help any advice you may offer would be greatly appreciated. My problem is that the employer I had worked for 10 1/2 years downsized and as a result I lost my job. This was during a time when I had taken a leave of absence for personal medical reasons. My problem is that I am sinking in debt. I have approximately 25,000.00 in credit card debt. My fiancee and I purchased a home last May we since then have married. I am afraid that now the credit card companies will go after him. I think this is unfair since this was all my debt and none belongs to him. Can they do this in California? Or could they possibly put a lien on my home? I have always had spotless credit. But I am finding that the ratio is way off now and I am being denied which is the same situation my husband keeps facing. I fear telling them that I am married in fear they will do wage attachments on his wages. again this is all of my debt and under my previous name. I have heard of going on a "streamline loan" which I am not familiar with the goods and bads on those. A second mortgage is running about 10% right now and frankly not knowing when I will return to the job force because of my medical conditions (I am on disability at the present time) I fear getting deeper in debt. Can you shed some options for me on this? I have also heard of different agencies that will reduce the payment, however how will this affect the reporting on my credit? Please rush an answer as soon as possible. thank you very much

Response:

Correct me if I'm wrong, but it sounds like you are telling me that you have $25,000 in credit card debt and that you have no way to pay it off? If so, here are some of your options:

First of all, credit card companies cannot put a lien on your house.

Also, since the credit cards are under your name, they will not affect your husband's credit.

You have a few options as to ways to reduce the debt, all of them will hurt your credit for the next 5 - 10 years.

One option is to use a debt services company to help you reduce the debt by negotiating with the credit card companies. I have listed some of these companies on my site at: http://www.free-financial-advice.net/consolidate-debt.html These types of services will reduce your debt and will hurt your credit for 5 - 7 years.

Another option is to declare personal bankruptcy. To do this, you need to consult with a bankruptcy attorney. What happens is that you go to bankruptcy court with your credit card companies and your debt is either eliminated or vastly reduced. This will severely hurt your credit for the next 7 - 10 years. Also, I'm not sure of the laws in California as to whether you can file bankruptcy alone, or since you're married, if you have to file as a couple. You can probably get more information on this by calling your local City Hall and asking them to send you information on bankruptcy or ask them to put you in touch with someone that can help.

Question:

I have a question about college savings plans - specifically 529 plans.

My wife and I have been investing in a college savings plan (UFUND - Fidelity) for the past 3-4 years for our oldest daughter. We started when my daughter was 3. She is now 7. We have been contributing $200 per month. The "portfolio" for my daughter (2012) invests heavily in equities/stocks in my daughter's younger years, and steadily moves towards bonds and money market funds as she ages. We have been taking a beating in these early stages of the portfolio as a result of the current economic conditions, and we feel that some sort of change is necessary.

It is our understanding that The UFUND allows the shifting of money from one "portfolio" to another, w/o penalty or fee. We are considering three otpions at this point:

remain status quo

eave the money currently in Portfolio 2012 (roughly $7500), but switch our monthly contributions to a safer "portfolio" (and therefore stop monthly contributions to portfolio 2012)

take most of the money currently in portfolio 2012 and put it into a more conservative portfolio, but continue with monthly contibutions to portfoilio 2012 (and therefore not make any monthly contributions to the more conservative portfolio)

ANY TIPS/ADVICE WOULD BE GREATLY APPRECIATED!!!!!!

P.S. FYI - the UFUND 529 essentially has options in five categories at this point in the Portfolio's "career" - domestic equities (10 fund choices), international equities ( 2 fund choices), high yield fixed income funds (1 fund choice), fixed income funds ( 3 fund choices), and short term bond and money market funds ( 2 choices).

THANK YOU VERY MUCH !!!!!!!!!!

Response:

It's hard to give advice on something like this because the most important factor in your decision should come from your own feelings. If you are losing sleep at night because you feel the portfolio is too risky, then you should move it into something less risky. However, if you can handle the ups and downs of the stock market, your best bet is to leave the funds in the 2012. I know it's easy to lose faith in the stock market when it continues to slide, but the economy is growing again and eventually this will be reflected in stock prices. Another question to ask yourself is: If you moved the funds to a less risky portfolio and the stock market rebounded for the next two years, would you still be happy or would you be more upset? There are hundreds of other arguments as to what you should do, but my suggestion would be to stay the course of the original investment.

Question:

I have a question that concerns a co-worker who was laid off from his job not too long ago. Although he has not contacted any loan companies, about refinancing, would he be able to still refinance without being currently employed?

I would be interested in this myself since the chance of me getting laid off is still in the possibility range.

Response:

Each loan program varies and there are definitely some programs that would allow you to refinance without a job, especially if you have good credit and if you have a lot of equity in the house you are refinancing. However, generally speaking, the interest rates on these types of loans will likely be higher, so it may not make sense to go forward with the loan. The reason the interest rates would generally be higher without a job is because interest rates are inversely related to risk. The higher the risk that you will not pay the loan back (based on your credit history, whether you have a job, your equity to debt ratios, etc), the higher the interest rate the lender will need to compensate for this risk. You may be able to find an underwriter / lender that doesn't put as much priority on having a job, in which case you may still be able to get a good rate.

If you are really interested in refinancing and still have a job, it would make sense to refinance before you lose your job. If you're interested in refinancing, there are many sites that you can submit your information to for free and they will send your application to hundreds or even thousands of mortgage companies and banks, looking for a program that will meet your needs. Also, you don't have to worry about these companies giving away your personal information (because if they did, then the mortgage companies could call you directly). I have some of these sites listed on my website at the following location: http://www.free-financial-advice.net/loans.html

Question:

I am not sure if you can help me or not? I have a question if you can not give me this advice could you tell me where I could get a good answer from?

I have about 15K in credit card debt. I want to know if I take 15K out of my stock to pay this off would this be a better plan to get me debt free or take out a low interest loan to pay it off over five years. If I was going to cash out on the stock I am going to take the money I was paying on credit card debt and reinvest it back into the stock market until I reach what every I take out. So, what do you think is the best way for me to go?

Thanks for your help.

Response:

Either approach makes sense. The decision is a very personal one to make, but if I had the choice between the two options, I would hold onto my stock and take out a low interest rate loan to pay off the debt. The reason I say this is because 1) interest rates are at an all time low and 2) stock prices are also at an historic low. Chances are that if you hold onto your stock it will add more to your long term asset value than the interest you would save by selling your stock and paying your credit card debt.

Another option that may apply to you would be to withdraw the $15k from the margin equity in your stock account and pay off your debt. This is a risky alternative and would only make sense if you have a rather large portfolio (> $100k). The benefit is that you can pay off your debt and keep your stock investment. Although you'll still pay interest on the margin portion of your stock account, the interest you pay can be deducted as an investment expense. Even though this is an option, it is a very risky method that I wouldn't recommend using unless you are very knowledgeable with respect to using leverage in association with stocks. Another similar alternative, if you have a 401K, would be to borrow against the 401K to pay down the debt. The benefit here is that you get to keep your stock and the interest that you pay actually gets paid to your 401K account, so it's a win-win situation.

Best of luck, you can't go wrong with either of the first two decisions

Question:

I have a question regarding buying a home. I have extremely good credit, but my husband has extremely bad credit back from when he was in college (5 years ago) How will this affect us going into the loan process. Between the two of us we make about $70K. Is it possible to get a loan in my name only? If so, my worry is that we will not be able to get a mortgage loan for enough money to purchase a house on my salary alone. Any suggestions on how we should go about purchasing a home, or how to make it possible for us to better his credit rating?

Response:

It's always hard to tell what is going to happen after you apply for a loan, as your application will be looked at differently by each lender. Here are some suggestions that may help you find a decent loan:

First of all, do you know that your husband's credit is still bad? Unless he had a bankruptcy, late payments on a credit report are supposed to fade off a credit report after 5 years. If it's been more than five years since any penalties, your husband's credit should be getting better. If you're close to the five year cutoff, then you may want to wait until then to apply.

There are three options that I can think of that could help you get the loan you desire. The first option would be to apply on a joint basis for your loan. If you are questioned about your husband's credit, respond to them with a good explanation as to why the penalties are on the credit report. If you applied for a loan like this through one of the online applications that sends out requests to many lenders, you'd probably find that even if the credit was a problem, someone would probably offer to lend you the money at a slightly higher rate. You could take an offer at a higher interest rate and then use it to improve your credit and then refinance in a year or two.

A second option would be for you to apply for a mortgage independently, but then on your application, when they ask you for other sources of income, list your husband's salary.

A final option would be to apply to a program that offers loans for people that have flawed credit. I have links to these lenders on my site. The only problem here is that you'll surely have to pay a higher interest rate than others. The good news is that, since interest rates are at all time lows right now, that rate could still be a relatively low rate for the long term. I would suggest trying the first option (above) before going directly to a sub prime lender.

Question:

I HAVE LOOKED THROUGH YOUR ADVICE FOR YOUR THOUGHTS ON ANNUITIES. MY HUSBAND MAKES ABOUT $500,000 A YEAR AND IS 37. WE HAVE PUT SOME MONEY IN STOCKS, PAID OFF SOME OF OUR MORTGAGE AND PUT SOME IN ANNUITIES. IS THIS A WISE INVESTMENT OR DID WE GET SWAYED BY OUR INSURANCE AGENT?

Response:

Annuities have their pros and cons. Their pros are that they take away a lot of the risk that you deal with in the stock market and other volatile investments and they also diversify your portfolio. The cons (in my opinion) are that you often pay high, hidden fees to the insurance agent/company and the investments are less flexible than other investments. It is all a matter of preference, but I wouldn't recommend putting a large percentage in insurance annuities.

Question:

I am 47, to be 48 this year.............I am in a delima..............I have eight years left on my house, only one big bill, a car payment with about five years left on it, my wife works and so do I..........I have a 401K with about $50,000 in it for retirement someday. I have several stock investment with harley-davidson and walmart worth about $4,000.....I have about $10,000 worth of very low yielding cd's (but safe), I am a BIG chicken with my money.....I am invested in the Janus Fund for about $4,000, plus have about $1,000 in Ameritrade.................I would love to do something with my cd money to earn more money, but like everyone else I am really scared to invest...........any suggestions, I have thought about annuity, but do not know enough about those....................your BIG chicken fiend, thanks

Response:

Given the length of your investment horizon (time until retirement), I would suggest that you only hold enough money in cash (or CDs) to fund any emergencies that you may need (say 2-6 months living expenses). The rest of your money should be invested in stocks and bonds. For your age group, I believe the norm is to invest about 60-80% in stocks and 20-25% in bonds, but you can adjust it to your risk preferences. The easiest and safest way to achieve this is to buy mutual funds, both stock funds and bond funds. Do your research and find funds that you trust and that invest in the types of stocks and bonds that aren't too risky for your taste (you can go to etrade.com and look under investing and then under mutual funds to screen thousands of funds). Invest in several different funds to further limit your risk. Then, sit back and try not to worry too much. Even if stocks go down for a while, if you keep investing you'll be able to buy more shares at lower prices, thereby getting in at a decent price. And given the amount of time you have to invest before retirement, if history holds true, stocks have never underperformed cash (or CDs) over a 10+ year period, so try to keep a long term focus.

So, to give some specific guidance, I would recommend: Keep your individual stock investments (Harley and Wal-Mart - they'll help you feel good about investing). Keep your 401K but make sure it's diversified across several funds. Move the CDs into your brokerage account and buy funds that meet your risk standards, but remember, the more risk you take, the higher your return will likely be.

Question:

I have an inheritance of stock coming to me. Would it be possible to obtain this stock to avoid unnecessary death taxes or cost before my relative becomes deceased? Any information would be appreciated.

Response:

The best way to get the stock tax free would be to receive it as a gift before the person passes away. Each person is allowed to give away up to $11,000 (check the amount as it rises each year) per year in non-taxed gifts. If it is more than $11,000, I'm pretty sure the tax liability will lie with the gift giver. Here are some links that give more information on the subject:

http://taxes.yahoo.com/guide/begin/gifts.html
http://www.fairmark.com/stockbas/gift.htm

You could also check with your accountant or a local H&R Block office for an answer.

Question:

My husband and I make about $95k combined before taxes, 401k contributions and medical/dental insurance payments. We have $7000 in credit card debt at 4.9% and a car loan of around $12,500 with 0% interest. Together our retirement accounts total close to $45k.

We thought we needed to buy a house since we rent an older home in a neighborhood that floods easily. I have tried so many times to get rid of debt and save but this time I had a plan to be debt free by this month and I am not. Back in March we decided to build a house in a new neighborhood in town. We put $1000 down for earnest money, paid $2600 in upgrades, $350 for mortgage app and $350 for an appraisal. Turns out the house was not built good enough for us and we decided to back out of the deal instead of live in a house we felt would cause us more problems in the first place. We pretty much lost the money but hoped to get it back based on shotty workmanship. The house we were going to buy was $170k, we were going to finance it using an 80/20 split with 0 down making our payments around $1550 a month. We currently pay $1100 in rent. Since we had no down payment money and I was trying to pay off debt by sending the credit card companies $2000 a month, to make sure we had closing costs, I took out a $3000 loan from my 401k account so really we owe $10k, which is no closer to being out of debt than before. 

We thought we had to buy a house to live someone so we looked at a better builder. We found a much nicer, brand new, completed house for $184k. We thought the house was a great deal and that we should jump on it, even though it was more than we wanted to spend more. We thought we could afford it and we also just loved the house and location. We put down another $1000 earnest money and applied for the mortgage and paid another $400 for the app. fee. We are supposed to close on this house next week but I am very very nervous. The mortgage co. has not even approved us, we don't have home owners insurance in line yet (storm in gulf of mexico), we don't know exactly what we will owe in closing costs and don't know what our monthly payments will be--we expect closer to $1700.

I am worried that I got out of the other house because I was scared and not really ready to buy a house and now I am doing the same thing with the second house.

We have a 10 year old daughter that I feel needs a real home to call her own instead of living in apartments and rent houses and moving all the time.

Suze Orman says people first then money then things. If that is correct, am I ready to buy the house? Can I afford it with only $5k in a savings account for closing costs and no idea how to pay for blinds and furniture?

Suze also says to
 1) get out of debt - $22K
 2) save 8 months of living expenses as a cushion - $24K
 3) save at least 20% of the cost of a home for a down payment and only get a 15 year mortgage and not a 30

I also have to think about my daughter. Her expenses are always growing each year and college is not that far off. We also would like another kid and to buy a truck for my husband.

What do we do? I really need advice.

Response:

Sounds like you are very stressed out about this decision, but don't worry, buying a house and all the other financial planning you're going through is a very stressful situation. I am going through the same thing right now, and I am also very stressed and I also doubt myself and change my decisions frequently.

Although I can't tell you what to do, I can give you some comments that may help you decide:

- First, If your income is going to grow over the years, then it is easier to justify spending more money on a house today. And if your income grows over the next 30 years, the mortgage payment will get smaller and smaller (relatively speaking).
- Second, In your case the mortgage payments will force you to save money (by building equity). According to your email, it sounds like it has been difficult to save money. Having a mortgage may help you save money by forcing you to make payments on the house. You should also use it as an excuse to stop spending your money on anything else that isn't absolutely
necessary.
- Third, Interest rates are so low right now (at a 45 year low) that you can afford to buy more house today than you may be able to in a few years (or whenever interest rates rise). For example, the mortgage on a $184k house at 6.0%, is exactly the same as an 8.0% mortgage on a $150,000 house. So, if interest rates increase just 2%, the same mortgage payment
will buy 20% less house.
- Fourth, the financial benefits of owning a house are vast. Not only will you build equity in the house as you pay down the debt, but you also build equity as the value appreciates. In addition, the interest on your mortgage payments is fully tax deductible and will save you thousands of dollars each year in taxes.
- Fifth, the non-financial benefits of owning a house are also vast. The increase in lifestyle, home pride, and a better atmosphere for your family all measure into the value of owning a home.
- Finally, if you're really worried that you won't be able to afford the new home, then you definitely shouldn't buy it. However, if you are honest with your lender and they approve you for the loan, then you obviously pass the lender's strict requirements. And if they deem you able to afford the house, that is a good sign.

Question:

I have two mortgages on my home. They add up to more than the house is worth. I would like to re-finance the loans. The company I'm with said they can't do it. What should I do?

Response:

If the mortgages are for more than the property is worth, there's no getting around it. Because your debt is greater than your equity, your debt ratio is likely too high to refinance with any kind of a decent rate.

Unfortunately, lenders only give you the credit when you don't really need it. As soon as your debt ratio increases and you've taken out more than 75% of your home equity, it's almost impossible to get a decent rate on a new or refinance mortgage. The reason it's so hard has to do with some recently adopted rules on what mortgage lenders consider a "cash out" loan.

I've run into some of the same problems lately and haven't been able to circumvent them. My advice is that you try to pay down the debt to below 75-85% of the property value before you try to refinance again.

Question:

I have a question and I could not find it on this site I was recently disabled from my job at a railroad after 28 years and am only 49 I get 2300 a month disability and will get between 2 to 4 million dollars in the next few months and know very little about how to handle that kind of money and I am going to have to live on it the rest of my life what should I do any advice would be appreciated.

Response:

With that kind of money, you should see a financial advisor. They will be able to help you personally model how to invest and protect the money so that it will last you the rest of your life. Be careful not to pay them too much though. You may be better off opting to pay them by the hour rather than as a percent of the assets managed. Also, it wouldn't be a bad idea to subscribe to a few magazines such as Money Magazine or Kiplingers Personal Finance. They are good magazines with lots of useful tips, and they are aimed at beginning to intermediate investors.

Question:

Within the next month I will get a trust fund of approximately $250,000 turned over to me and my family. My husband and I are 25 years old and we have a debt of $20,000 (student loans mostly and one credit card of $900) We are setting up a trust fund for my daughter starting with approximately $30,000. We are also setting up a college fund for her. My main question is, I want to invest approximately $100,000 dollars of it but how? I am scared to death of losing it all. This has been keeping me up at night because I want to retire with this money when I get older and do not want to see it go down the drain. HELP.

Response:

First of all, I have a page on my site that discusses how to begin investing, but another option is to see a financial advisor to help you get started. They can probably help you make specific recommendations, but remember they are often incented to put you into funds that benefit them. Here is the link to the page that covers how to start investing:

http://www.free-financial-advice.net/investing-beginners.html

In your case, I would recommend that you start with a diversified portfolio of low cost mutual funds. Buy one or two large cap funds, one or two small cap funds, and one or two medium cap funds. Try to find funds in that cover a little bit of tech, some international, and some stable, blue chip companies, as well as stocks that just track the markets.

Because you are so young, I would not recommend investing too much in bonds or other less risky assets at this time, but if you truly can't sleep at night, feel free to invest some of the money into CDs or diversified bond funds. To pick the actual funds, I would recommend going to etrade.com and going to their mutual fund page to help you choose some funds. Here is a link to that page:

https://us.etrade.com/e/t/invest/mutualfunds

If you get stuck or are uneasy picking funds, don't worry about. Keep doing your own research over time and you will get more educated and more comfortable with your decisions. If you can't decide on your own, take a list of funds you like to a financial advisor and ask for their help.

Question:

Can you tell me what the expression "strong dollar" means when you discuss it against another dollar?

Response:

Strong currency refers to the relative strength of one currency versus another. For example, if the dollar is strong, then it buys more goods from other nations than if it were weak. So, for example, if the dollar strengthens against the British Pound, then you could buy more Pounds for each dollar. Or in terms of the US Economy, goods from Britain would appear cheaper to the US and the US would be able to buy more goods for less money.

Question:

I am 18 years old, and about to start college. I cashed in some bonds about a month ago that were way past mature and ended up with $1500; not exactly a large amount, I know, but more money than I've ever had before. I took $400 and put it in my checking account, to help cover living expenses and emergencies while I'm away from home. Then I took 1100 and bought a 3-5 month "bond"- I think they call it a certificate- at 2.5% interest. I know that's not too great either, but it was the best I could do. In my new job I will be making $600 a week. My food and housing is paid for by my tuition (which my parents are taking care of, thank God). My question is this: how much of my monthly income should I save, and what kind of investments should I make with my savings? I'd like to start good investing habits now, while I'm young, so that I can benefit later in life. Please help!

Follow on question:

I forgot to mention a few pertinent facts... I have a credit card for emergencies only. It has a $500 limit and a 13.9% interest rate. My mom suggested that I use it to buy small things and pay it off right away, before the interest is charged, in order to establish good credit. This sounds fine to me.

Also, I own my own car and computer outright. My car is a 2000 model, bought used last year (it had been a rental car). It is in excellent condition, and should last me at least 10 years. My car insurance is part of my parents' plan, and they pay for it (man, I'm a lucky kid). My computer is also brand-new and top-of-the-line, likely to last me at least six or seven years.

I was able to buy these outright because my grandfather set up a trust for me when I was born containing $14,000. Unfortunately, no one bothered to tell me about it, and my mom spent all of the money. She didn't spend it badly, really... About half of it went to the new house she just built, and the rest of it bought my computer and my car. I thought at the time that my mom had just saved up money in order to buy me these things. My dad told me about the trust after the money was spent. I don't know if I would have spent the money that way, but there's nothing I can do about it now... You probably didn't need to know all that.

Once again, thank you so much. I realize that I'm very lucky in that my parents are willing to help support me even though I'm 18 and in school, but I'd like to take steps to ensure my future financial strength/independence/success.

Response:

I’m impressed with your motivation and drive to become financially independent, especially at such a young age. You remind me a lot of myself, as I have always been driven to get ahead by making smart financial decisions. As long as you don’t get distracted from these goals I’m sure that you’ll find it rather easy to amass a lot of net worth over the years. And judging by the information in your email, you don’t really need much financial advice. However, here is the advice I do have, most of it is college-related:

Finish school in four years. It will save you lots of money, show your commitment to future employers and give you a full year of extra earnings to save and invest (versus spending five years in school).

The best way for you to become financially independent (since it sounds like that is one of your goals) is to get a job that will pay for all of your expenses. This will help keep you out of debt during college, which will give you a HUGE advantage over many of your peers when you graduate. Instead of paying off $10,000-30,000 in student loans after you graduate, you will in effect be able to invest the money you’d be paying in loans, and thereby get a quick start to your investment portfolio. By the way, don’t ever let your job interfere with your grades.

Take a few finance and economics courses. Regardless of your major, the most important thing I ever learned in college came from these courses. Learn how the economy works, how money circulates, the time value of money, and most importantly, supply and demand and how they change everything! The intro courses should be enough to get your mind in the right gear.

Regarding the credit card comment your Mom made: I agree that it is also important for you to establish your credit as quickly as possible. It is a good idea to sporadically use your credit card and then to pay it off in full as soon as possible. Your credit will be improved in two ways: 1) As soon as you use your credit card you will begin establishing your credit – the longer period of time in which you’ve had credit (and not abused it) will help your credit. 2) The amount of money you spend at one time will also influence your credit. For example, if you spent $500 on your credit card and then paid it off, your credit report would show that you had a maximum balance of $500 (and that the current balance is $0). This helps your credit by showing creditors that you have the ability to pay off large amounts of debt. Don’t ever lose control of your credit card debt!

Have fun! Don’t worry about trying to save and invest money while you are in school. If you can, great. But if you can just get through school without being in debt, that is the same as saving money. Enjoy your time in school. One of the most important financial impacts to your life will be the extra earnings power that a college degree offers, so focus on school, spend your money on beer and fun, and when it’s time to graduate, then put together your financial budget and savings plan.

Best of luck and keep on the right track,

Question:

CASH FLOW PROBLEMS

We are in need of some financial advice. My husband (who is disabled) and I have a total monthly net income of $4,393.00. Our bills total per month $3,896.00 leaving $497.00 a month for all the other expenses (food, gas for two vehicles, co-payment for medical expenses, and any and all other incidentals that might come up.) We own our home and still have a balance of $103,000. Our payment is $1,554 per month - this includes taxes and home insurance. Our house is probably valued around $225-250k. We have vehicles that are leased and we would like to keep them when the lease is up (both in about one year) we will have to finance the remaining money due on them about $26,000 (but, this should equal out to what we are paying on the leases now). The bottom line is we need more cash flow per month. I contribute to my 401k about $75.00 per week and have about $11k. We have no other savings. My husband’s credit report is excellent and mine is good to excellent. We owe 2 credit card bills both at low percentage rates 8.9% and 9.9% a total outstanding $14k. We have an equity line of credit $40k which we do not use because the interest rate is so high approximately 20.99% (we have not closed this account out because there is a penalty – so we just keep it open and will close it next October, 2003). Is this going to hurt us if we decide to refinance – will it show that we have too much credit out. Help, how do we free up some cash?

Please email me back with your advice as soon as possible, thanking you in advance for your help.

Response:

The best ways I can think of to increase your cash flow, assuming you can’t increase your monthly income, is to lower your monthly expenses. The most effective way to do this is to refinance your mortgage at a lower interest rate or for a longer period of time. The second most effective way to do this would be to eliminate (pay off) your credit card debt. Perhaps it is possible for you to consolidate your credit card debt into a new mortgage or home equity loan. This could substantially cut the amount of your total payments.

I have several loan companies listed on my site that could help you find a low interest rate loan that would help increase your cash flow. They can be found at the following location:

http://www.free-financial-advice.net/loans.html

If this option doesn’t work for you, you should still be able to find a lower interest rate credit card, as many credit cards are offering 2.9% financing on balance transfers until they are paid in full. In addition to those techniques, you can also lower your expenses by cutting out payments on non-essential items or just by saving money in general. For example, by driving a used car that you have paid for, you no longer have to make a large car payment. Also, eliminating such mundane things as HBO and Cinemax from your cable / satellite bill can help. I have an entire page of tips on how to save money at the following location:

http://www.free-financial-advice.net/save-money.html

Best of luck,

Question:

Question for you and by the way the site is great and very helpful (wide array of questions and scenarios presented, etc).

I've seen from your site that if I have no other high interest debts it would make sense to make additional payments on my mortgage. I've been doing this but noted that if I pay an extra 1,000$ per month only ~699$ of that is actually applied as principal (is there any way to avoid this situation when obtaining a loan?). As per the loan calculator an extra payment of 1k per month would reduce my interest payments by 17,583$ for the remainder of the loan. My interest rate is 6.875%, which when reduced for tax deductions is most likely below 4%. Although, I'm a fanatic about paying of loans diligently it seems like I might do better to invest the money when all factors are considered. Second part of the question is I have two loans at the same interest rate. One loan is much larger than the other though (170k vs 50k and 30 years vs 15 years). Does it make sense to pay off each equally or would I do better to focus all efforts on the higher value loan with tax deductions, etc considered? I've heard that only two properties can be utilized as tax deductions. Would it make sense to pay off the lower loan if I plan to purchase an additional investment property in the near future (i.e. would again only have two loans both which could be used for tax deductions)?

Thanks for any advice you may be able to provide and thanks again for offering this great service.

Response:

First, the question about your mortgage provider and why they are only crediting you $699 on principal instead of the full $1,000. My guess is that they are treating your $1000 payment as next month's payment rather than applying it directly to principal. If this is the case, then you may want to change the way you pay the extra $1,000 per month. Try writing a separate check and putting a note with it saying "please apply to principal". Unless you have some type of prepayment penalty, I don't think there is anything your mortgage company could do but credit the $1,000 to principal. I could be wrong though, as I've seen some pretty weird clauses in some mortgage contracts.

Second question was whether it makes sense to invest the money rather than to pay down your debt. In my opinion, it is much better to invest the money rather than to pay down very low interest rate debt. Not only should you make more money investing than the 4% after tax interest rate you are paying, but it will also give you a liquidity fund if you run into a pinch and need money, or if you want to buy another investment property (it's always easier to buy property when you have cash - it also gives you an upperhand versus other buyers). Also, many people are backing away from investing their money right now (especially in the stock market). In my opinion, that makes it one of the best times ever to invest, especially if you invest a fixed sum each month. By investing a fixed sum each month it ensures that your investment is at an average price (rather than buying in all at once).

Your third question was rather or not you should pay off the loans equally or one faster than the other. In your case, I would look at the following factors: If there really is some kind of penalty for early payment on the loan referenced above, then it may make sense to pay the other loan off faster. Also, if one is at a higher interest rate, you should pay that loan off faster. If you want to reduce your future liabilities (payments), you could pay off the smaller loan quicker so that, when paid off, you will only have one loan payment left.

Your final question was rather or not you can get tax deductions for more than two loans. I could be wrong here, but I've never seen anything limiting the number of loans that you can use as tax deductions. As far as I know, you could own 20 investment properties and have 20 loans, all of which would be interest deductible on your tax forms. You may want to check in with your accountant on this issue.

Question:

I'm not sure if you answer detailed questions or not, if you can I appreciate it, if not, do you know who does?

Situation:

I earn 35k a year. I have 18k credit card debt at 6.99% for the life of the loan (I juggled). I have no other debts. My boyfriend and I have 100k for a house downpayment from inheritence. He earns 45k and has no debts. Houses in this area cost 250k-350k. My credit rating is 777. His is 670 (short credit history). I am making large monthly payments to pay down the credit card debt.

Questions:

Do I wait to apply for a mortgage until I've paid down some debt? Do I use some of the downpayment to pay off the debt before applying for a mortgage?

Do I apply for a mortgage first, then see how much of a downpayment I need before paying off credit cards? Do I move the credit debt into a nonrevolving loan (8.9% at my credit union)?

Response:

Here are my suggestions:

It would make sense to pay off the credit card debt instead of using it toward the house. Paying off the debt would lower your debt to loan ratio and would also save you money in interest. Currently, the 6.99% you pay is not tax deductible, but a new mortgage would be tax deductible, and at current rates would likely be at a lower interest rate.

However, you don't need to pay off your credit card debt to get a good loan. Nor do you have to wait until you pay it down further to apply for a loan. Having that much cash will make it easy for you to get a good loan. Therefore, if you do not pay off your credit card debt, and you have a fixed rate of 6.99%, I would not transfer it to a credit union loan at a higher interest rate. Credit card debt is no different than bank debt when applying for a loan.

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