Dear Dave,
My son has a
$115,000 mortgage at 5.8 percent. He also has a home equity line of
credit of $40,000 at 9 percent. Currently, he can get a 30-year loan at
3.5 percent, or a 15-year note at 2.75 percent. His take-home pay is
between $70,000 and $80,000 a year, and these are his only debts. Should
he combine the mortgages into one loan?
- Daniel
Dear Daniel,
First, I only
recommend mortgages of 15 years or less. Now we’re looking at a 2.75
percent loan versus a 5.8 percent loan versus a 9 percent loan. I advise
people to put home equity loans under Baby Step 2 of my plan, which is
pay off all debt except for the house, provided that the loan is less
than half of your annual income. Based on the income figures you gave,
this situation is kind of on the bubble.
If I were in your
son’s shoes, I’d probably combine the two loans and refinance. I’d go
for a new $155,000 fixed-rate mortgage at 2.75 percent, with no balloons
and no calls. This kid can live a good life and get the mortgage paid
off pretty quickly with the kind of money he’s making.
But if it’s me, I’m
getting as short a term as possible on a refinance - maybe even a
10-year note instead of 15 years. Just imagine him getting all this
knocked out and still having the majority of his life ahead of him.
That’s financial peace!
- Dave
Retirement blend
Dear Dave,
My husband and I are
debt-free. Recently I learned that I have a blended fund for retirement.
Do you think I should switch to self-chosen funds? I have $26,000
invested at the moment.
- Marina
Dear Marina,
My advice is to
move your money into self-chosen funds. The problem with blended funds
is not that they are blended, but that they’ll move it around based on
your age and where they perceive you to be in life. You won’t even
realize it’s happening. I want you to be a lot more intentional with
your money and know what’s happening every step of the way.
With self-chosen
funds you can look at them and say, “Those are my funds.” Then, if down
the road you decide one isn’t doing as well as you like, you can move
the money to a different fund. With blended funds it’s almost like
having a baby sitter for your money. You’re not the one watching the
kids, and to me that’s a big mistake.
There shouldn’t be a
lot of fees inside your 401(k) when it comes to trading funds. There’s a
good chance there won’t be any fees at all, especially if you stay
within the same company. Check into it, Marina, and talk to your human
resources people. They can give you all the details.
- Dave
Resenting the family loan
June 11, 2013
Dear Dave,
I borrowed $30,000
from my aunt to buy a condo eight years ago. We had a deal that she
would get her money back, plus a piece of the profits, when it sold. If
there were no profits, she would get back her original $30,000. Recently
the condo sold and I lost the money I put into it, plus my aunt’s money
as well. I make good money and don’t have any other debt, but I’m a
little resentful now that she wants me to pay her back. Do you have any
suggestions?
Christine
Dear Christine,
I don’t want to be mean, but you have no right to be
resentful toward your aunt. This is the deal you signed up for, and she
did nothing wrong. Wanting her money back now isn’t greedy or malicious
on her part, and it’s definitely not worth putting a family relationship
at risk.
I know what you’re thinking, because it’s just human
nature. You just went through a lot, and the situation didn’t work out
as planned. Plus, it doesn’t sound like your aunt is hurting financially
if she put $30,000 toward helping you in the deal. Part of you is
thinking she has plenty of money, so why doesn’t she just forgive the
debt and forget about everything?
If you were barely scraping by, I might suggest that
you sit down and talk with her over a cup of coffee, explain the
situation and ask her to forgive the debt. Right now, the little girl
part of you is whining, “Oh, come on. Just let me go!” But the grown-up
Christine knows better. That part of you is whispering, “You know what
to do.”
Pay her back as quickly as possible, and get this bad
deal behind you for good. You said you make good money, so just take
care of your responsibility. It’ll hurt some, but it’s better than
taking a chance on ruining the relationship with a very generous and
loving aunt.
- Dave
Watch what you give them!
Dear Dave,
I’m working on my debt snowball, and I’m trying to
settle with a pushy collector. I don’t have the $9,000 I owe, but I have
$3,000 I’d like to offer as a settlement. Recently the collector has
started asking for a lot of information I don’t feel comfortable
providing. What should I do?
Daniel
Dear Daniel,
Lots of times in these kinds of situations collectors
are trying to gather up as much information as possible in order to sue
you. Even if that’s not the case here, there’s no reason for you to be
supplying them with a bunch of extra info. Just offer them the $3,000,
and make it clear that your financial coach - which is me - told you not
to answer any more of their nosy questions.
Make sure they understand that your offer of $3,000
stands as a settlement of the debt today. If they’re willing to accept
the offer, get a statement in writing saying that the $3,000 represents
payment in full before you cut the check. If they choose not to accept
your offer, and they keep asking questions that are none of their
business, just tell them to call back when they’re willing to discuss
terms. Then, hang up!
- Dave
