Take the Roth


June 12, 2014

Dave Ramsey

Dear Dave,

My current employer offers a regular 401(k) and a Roth 401(k). Iíve got several years before I retire, so which one should I choose?



Dear Jennifer,

Take the Roth!

If you put your money into a Roth 401(k), and by retirement age thereís $1 million in there, that money is yours tax-free. By comparison, if itís in a regular 401(k), youíll pay taxes on that $1 million, which will come out to about $300,000 - maybe $400,000 at the rate things are going now. Youíll lose 30 to 40 percent of your money.

My personal 401(k) is a Roth. And in this situation, yours should be too!

- Dave



Let go of the timeshares

Dear Dave,

My mom passed away recently, and she left behind three timeshares. I inherited them, plus Iím the executor of the estate. Theyíre all paid for, except for the yearly maintenance fees, which total about $1,500. I donít think I want them, but Iím not sure what to do. Do you have any advice?



Dear Joe,

Iím really sorry to hear about your mom. I know youíve got a lot of emotions going on right now, and taking on the task of overseeing the estate is a serious responsibility.

There are two issues here. One, as the executor you have to decide whatís best for the estate. Number two, do any of the other heirs want these things? I wouldnít want them, I can tell you that. I realize theyíre basically free things - all you have to do is pay the maintenance fees - but by the time you do that, you probably couldíve gone somewhere else. For that kind of money, you can stay in some pretty nice spots and not have the ongoing liability.

Right now, the estate has the responsibility for the maintenance fees. I would call the timeshares and tell them the estate isnít going to keep them, and that youíre going to deed them back to the companies. The way I look at it, you can have a lot of fun for $1,500 a year. You can go where you want, when you want. Youíre not roped into a specific place and date. Part of the appeal of getting away is being able to go where you like at a time thatís right for you.

I understand there may be some sentimental value attached to these, Joe. But timeshares are a horrid, inconvenient product. My sentiment would be, ďIím out of here!Ē

- Dave

Roll the money

June 9, 2014

Dear Dave,

How should I handle my 401(k) when moving from one job to another?



Dear Tracy,

I would roll it to an IRA. Your new company, if you move it there, will have limited choices for your 401(k). Youíd also probably have a lengthy waiting period for verification and the potential add-on fees and taxes.

Plus, with an IRA you can cash it out if something really bad happens. But I rarely ever advise people to cash out their IRAs. The only exceptions are extreme cases, like to avoid bankruptcy or foreclosure. Even then, hardship withdrawals are very difficult to get. And again, this kind of thing should never be done except in an absolute, worst-case scenario.

Just roll your money into a traditional IRA, Tracy. Itís called a direct transfer IRA, and that way there will be no taxes on it. You want the money to go directly from the 401(k) to the IRA. Then, youíll have the freedom to choose from about 8,000 mutual funds and move the money around, if you like.


In other words, youíre in control. Thatís the way it should be when it comes to your money!

- Dave


It all evens out

Dear Dave,

We have three children, ages 15, 10 and nine. With our oldest starting high school and just being a teenager, weíre spending lots more money on her than the others. Itís almost like sheís the favorite child. Should we spend more on the other kids to make things seem a little more fair?



Dear Julie,

I donít think so. In five or six years, itíll be their turn and you guys will be spending that kind of money on them, too. Thatís the way it is with teens.

Hereís a question for you. When the 15-year-old is 23, and youíre buying prom dresses and all the other teenage stuff for the younger kids, are you going to turn around and give the older child extra money just to ďeven things upĒ? Of course not - that would be silly. She had her moment in the sun, and now itís their turn.

Just make sure you hug on all of them equally, and let them know you love them! 

- Dave


Wait for it

Dear Dave,

Would it be okay to go on a 10th anniversary honeymoon while weíre working on our debt snowball?



Dear Karen,

I donít think so. I mean, itís not against the law or anything like that. I just donít think itís a good idea. I wouldnít do it, and I wouldnít suggest taking the trip then rolling it into your debt snowball either. I know this probably sounds mean, but Iím just not a big romantic when it comes to people who are deeply in debt.

A rare exception may be a situation where you have a really small debt snowball and a nice, fat income. But most people in your shoes have average incomes and mountains of debt. On top of that, they want to take a big celebration vacation? I would say no.

At some point you have to stop the spending and concentrate on getting your finances in order. Besides, youíve got a lifetime together to take romantic vacations and celebrate your marriage. Just wait until you can afford something like that. Trust me, youíll enjoy it even more!

- Dave

Millionaire widow needs a prenup

May 30, 2014

Dear Dave,

My husband died several years ago. He always worked very hard, and we did very well financially. I am now 48 and have $3.8 million in assets. Iíve found a wonderful man who is very stable and loving with a good job, and weíre considering getting married. Do you think I need a prenuptial agreement?



Dear Heather,

For years I told people never to do prenuptial agreements. I always said if you love your money more than you love your spouse, then youíre too immature and selfish to be married.

However, Iíve changed my tune on this subject a little bit recently. When one or two wealthy people get married, the problems that can arise usually have nothing to do with those two people. The problem is that it can invite a lot of crazy into your lives from the outside. Whether itís a parent, cousin or child, sometimes people start feeling a sense of entitlement when wealth is suddenly thrust into the picture.

You both sound like mature, functional people with good values. In most cases, thatís a pretty good indication that crazy isnít in the immediate vicinity. Still, thereís a lot on the line. So while I would advise a prenup, you might keep an open mind to revisions somewhere down the road. Make it pretty solid and protective for the first five or 10 years. But then, after you guys have built a life together, youíll hopefully reach a point where youíll feel safe looking at it as all ours.

So, the only reason Iíd ever suggest a prenup is when two parties are bringing really unequal amounts to the table. Yours is an extreme situation, Heather, so Iíd give it some serious thought. Let him know you want to do this to protect the relationship, so that thereís never any hint that the money is a problem or will create problems. If heís as kind and thoughtful as you say, I think heíll understand.

- Dave


AAA or self-insure?

Dear Dave,

What do you think about auto club memberships like AAA?


Dear Jeremy,

Iíve got nothing against AAA. But honestly, I tend to self-insure through savings for these kinds of things. Iíve probably used, or had need of, a tow truck twice in the last 20 years. When it comes to this kind of product, I always look at it from the perspective of, ďWhere does it leave me if I donít sign up for their service?Ē

Again, I donít think AAA is a big rip-off or anything like that. Itís just a type of insurance, if you will, for which I have no need. I guess it could be a handy thing to have if you were in a situation where you were using their services a lot. But if their average customer were like that, theyíd probably end up losing money on you.

- Dave

Paying the right amount for a house

May 13, 2014

Dear Dave,

I know you recommend that no more than 25 percent of your take-home pay should go toward rent or a mortgage payment. Should taxes and insurance be figured into this amount?



Dear Kayla,

Yes, they should. Mortgage companies will qualify you for twice as much house as you can realistically afford. Theyíll try to put you on a 30-year, adjustable-rate mortgage and leave you in debt up to your eyeballs for half of your life. Payments like that can easily equal 36 percent or more of your take-home pay. Thatís just nuts!

I see so many people who canít take a decent vacation or save anything for retirement or their kidsí college fund because their mortgage payment is through the roof. Thatís called being ďhouse poor.Ē And Iíve even seen it push people into debt just to buy groceries.

Itís fine if you want to follow my guidelines. But what Iím really trying to do is get you to think. Engage in some critical thinking when it comes to your finances. Thereís so much more to life than that building we call a house. I want you to think about your future and your familyís future and make smart money decisions that will change your family tree for years to come!

- Dave


More than one life insurance policy?

Dear Dave,

Can you have more than one life insurance policy, and is there ever a reason to do this?



Dear Chad,

Sure, you can. And there are several different reasons you might choose to do this.

One, like in my case, I have lots of insurance regarding our business, our estate plan and those kinds of things. In some cases, Iíve reached the limit on the amount of a policy a company will write on me. Most life insurance companies will only write so much in coverage for one person. So when this has happened, Iíd go to another carrier for additional coverage.

Another reason people do this is to feel more secure from a company standpoint. If one insurance company goes out of business, theyíll still have another policy, or policies, in place. Usually, thatís not much of an issue. Most insurance companies are financially stable or have insurance to back them up with the state.

The only real problem with having more than one life insurance policy is that it complicates your life a little bit. Youíd have two or three premium checks or withdrawals to worry about each month and possibly even additional policy fees. So generally speaking, itís cheaper to have just one policy. And Iíd recommend having 10 to 12 times your annual income wrapped up in a good, level term policy.

But no, there arenít any rules against having more than one life insurance policy.

- Dave


Helping her the right way
May 6, 2013

Dear Dave,

My wife and I have a friend we met through the Big Brothers Big Sisters program. She has a 1-year-old child, and she recently asked us for some money. We donít really approve of how sheís choosing to spend her money - sheís spending a lot of it on alcohol and cigarettes - but she does need financial help. What should we do?



Dear Mike,

I have a very simple rule for situations like this. If someone is bold enough to ask me for my money, I can be bold enough to attach requirements to the money for their own good.

One of two things will happen when you handle things in this manner. Theyíll welcome the help and graciously accept your conditions, or theyíll get mad and act like you have no right interfering in their business. I donít have a problem helping people who have a good heart and really need a break. But if someone cops an attitude with me in this situation, I wouldnít break out my wallet anytime soon.

Regardless, if you choose to do this, Iíd make the money a gift and not a loan. Concentrate on trying to get her on a path where she thinks a little straighter, and, as a result, she will make better choices. Teach her how to make and live off a budget or help her enroll in a personal finance course. But right now, just handing her money is like giving a drunk a drink.

This whole situation is a lot bigger than giving someone $35 for diapers. The answer to that is easy. Itís yes. But in this case Iíd probably give it to her in the form of a grocery store gift card. Many of those donít allow alcohol and cigarette purchases. Or, Iíd just go buy diapers and baby food and take them to her. Actually helping people is a lot more work than just throwing money at them. To really help someone, you have to get down in their mess and walk beside them.

Financially speaking, her problem is just as much mismanagement of money as it is a lack of money. Anyone who chooses smokes and alcohol over diapers for their kid needs to be smacked. But since you canít really do that, you can put conditions on your help that are designed to help her improve her decision-making abilities and, by doing that, improving her life.

- Dave


Investing in savings bonds

Dear Dave,

What do you think I should do with savings bonds Iíve been given over the years?



Dear Ashley,

Iíd cash them out now and invest them in something better. Savings bonds earn almost no money. Plus, theyíre the kind of things people just leave lying around and forget about.

Back in the day it was a big thing to get and give savings bonds. Weíd get them for birthday presents and such. Then, weíd wait until they matured and cash them out.

Thatís exactly what Iíd do in your case, Ashley. Cash them out today and put the money into good growth stock mutual funds. Youíll be glad you did!

- Dave

Not a good idea
May 1, 2014

Dear Dave, 

Iím 23, transitioning jobs, and I make $32,000 a year. I have $11,000 in a 401(k), and about $15,000 in debt. Should I cash out the 401(k) to pay down my debt?


Dear Cody,

I donít think so. When you take money out of a 401(k) they charge you a 10 percent penalty, plus your tax rate. Your tax rate is about 20 percent, so that means youíre going to take a 30 percent hit. While I love dumping debt, your idea would be kind of like saying, ďI want to borrow $11,000 at 30 percent interest to pay off my debt.Ē That doesnít make a lot of sense, does it?

I never tell folks to cash out a 401(k) or IRA to pay off debt, unless itís the only way to avoid foreclosure or bankruptcy. Youíre not facing either one of those situations, Cody. So my answer is no.

- Dave


You can do it with no fees

Dear Dave,

What do you think about making bi-weekly mortgage payments?



Dear Jeremiah,

I think itís an awesome idea. By doing that, you can pay off a 30-year mortgage in about 22.8 years, on average, depending on the interest rate.

However, I would never pay someone a fee to set up bi-weekly mortgage payments. All you do on a bi-weekly schedule is make half a payment every two weeks. Since there are 26 two-week periods per year, that equals 13 whole payments. Itís nothing magical, and itís not difficult.

Go for it, Jeremiah. Get rid of that house payment as fast as you can. Just donít pay extra fees to make it happen!

- Dave


Move to the head of the line!

Dear Dave,

I owe the IRS $6,000, and currently Iím making monthly payments. Should I roll this debt into my debt snowball, and then really attack it when it gets to the top of the list?


Dear Jared,

My advice would be to put the IRS at the very top of your debt snowball. Usually, when it comes to paying off debt, I advise people to arrange their debt snowball from smallest to largest, then start with the smallest one and work their way up. This doesnít always seem to make mathematical sense, but the truth is personal finance is 80 percent behavior and only 20 percent head knowledge. Paying off some small debts quickly energizes you and gives you motivation. It makes you feel like you can really do it. Besides, if you were such a math genius you wouldnít have debt in the first place.

But the IRS is a different animal altogether. Their interest rates and penalties are ridiculously high. Plus, they have virtually unlimited power to collect. So put them at the top of the list, and get them paid off as fast as you can!

- Dave

Saving Priorities

April 22, 2014

Dear Dave,

I noticed that your Baby Steps list puts saving for retirement before saving for your kidís college fund. Sending your kids to college would come first on the timeline, so what is your reasoning behind this?



Dear Jen,

I advise this approach because everyone is going to retire someday, unless, of course, they happen to die before reaching retirement age. Retiring and eating are necessities. College is a luxury. Lots of people succeed in life without going to college, and thousands have worked their way through college. I worked 40 to 60 hours a week in college, and I still graduated in four years.

Having a college fund set aside by your parents is really nice, if they can afford that kind of thing. But you can go to school by getting good grades, applying for scholarships, working your tail off and choosing a school you can afford. I believe in education, but there are lots of ways to get a college degree other than having your parents foot the bill. Besides, the last time I checked there werenít any good ways to retire that didnít include saving and preparing for retirement beforehand. I mean, you can always try to live off Social Insecurity, but I donít consider that a plan.

In short, college funding is not a necessity. Thatís why it follows saving for retirement in the Baby Steps. Should you try to save up for your kidís college education? Sure, if you can. But there are lots of parents out there who wonít be able to pay a dime toward someoneís college education. And that doesnít make them bad parents!

- Dave


What should I do now?                               

Dear Dave,

I think I made a big mistake when I bought my car. Iím having a hard time affording the $500 a month payments, because I only make minimum wage at my job and work 35 hours a week. My boyfriend, who was supposed to help me pay for it, has moved out and left me. I owe $20,000 on the car, but I know itís still worth about $19,000. What can I do?



Dear Rachel,

Sell the car! You went car crazy and bought a vehicle that was way out of your league.

Right now, your entire financial world is wrapped up in paying for this thing. And depending on a boyfriend to help make the payments was a big mistake, too. When he left, so did the financial support.

At this point all you need is enough to cover the hole you dug. Go to your local bank or credit union and try to get a very small loan from them - about $3,000. I hate debt, but you really donít have a lot of options here. Then, if the car will sell for $19,000, get it sold and use $1,000 to cover the difference.

After that, take the remaining money and buy yourself a little beater. Iím talking about basic, ugly transportation. The next step is to pick up a part-time job on the side, and work like crazy for a few months to get that loan paid back as quickly as possible. Donít ever do this kind of thing again, Rachel!

- Dave


Problems with no credit score? 
April 18, 2014

Dear Dave,

Iím 20 years old, and Iím trying to get out of debt. However, Iím concerned about what might happen when Iím older and donít have a credit score. My girlfriend says I wonít be able to get a job or rent an apartment without a good one. Is this true? Ė Ian

Dear Ian,

No, itís not true. Iím sure your girlfriend is a sweet person, but she has no clue what sheís talking about in this situation.

In either case you can simply explain that the reason you donít have a credit score is because you have no debt. Since you donít have any debt, you have something known as money. That makes you very stable, and it makes you a fantastic candidate as an employee or tenant.

Listen to me, Ian. Iím a landlord, and if I had my choice between a tenant with no debt and no credit score and someone with a high credit score but lots of debt, Iíd take the one who has no debt in a heartbeat. Why? Because thatís the one who is most likely to pay.

Besides, you already have a good credit history if youíve paid your bills on time. Show them proof of that, if necessary. But taking on a pile of debt to have a high credit score or increase your current score is just plain stupid! Ė Dave

No CDs for kids

Dear Dave,

Would it be a good idea to open CD accounts for my two small children? Ė Abe

Dear Abe,

No. A CD is a Certificate of Deposit. Basically, theyíre not much more than savings accounts which carry early withdrawal penalties. They earn about the same as a regular savings account, too, which at the moment is next to nothing. Thereís no reason to open them for your kids.

Now, is it a good idea to save money on behalf of your children? Of course, it is. But if the idea is simply to teach and help them save money, Iíd recommend simple savings accounts. If youíre talking about wanting to save money for them Ė like for a college fund Ė Iíd suggest an Educational Savings Account (ESA) with good, growth stock mutual funds inside.

Even if you want to put aside college savings, Iíd urge you to go ahead and open regular savings accounts for each of them. We did that for our kids, and I can tell you from experience, youíll find tons of teachable moments about saving, giving and life in general!


Your bankís advice is bad
April 11, 2014

Dear Dave,

I want to roll over a 401(k), and my bank is encouraging me to roll it over to fixed annuities. Is this a good investment?


Dear John,

More times than not, when you go to a bank for investment advice, what youíll get in the bargain is bad advice. And thatís the case here.

Iíd move toward a traditional IRA, in a series of good growth stock mutual funds. Put it across four types of accounts: growth, growth and income, aggressive growth and international. What youíre looking for, John, is a great track record for your investments. You want a track record so ridiculously good that it gives you a great sense of comfort, even though thereís no guarantee of whatís to come. And there are mutual funds out there that can do just that for you. I own one thatís over 70 years old, and it has averaged nearly 12 percent over that time.

Lots of people talk in ďwhat ifsĒ when it comes to investing. Well, you can play that little game all day. But if the economy goes completely down the tubes, and the government destroys things like mutual funds and real estate completely, your little bank-recommended annuity isnít going to make it, either. The banking system as a whole will fail if all the mutual funds close because theyíre all based in publicly traded companies. And that means virtually every business you drive by on your way to work would be out of business. A bankís not going to survive that kind of thing.

If youíre looking for things to help you survive the apocalypse, youíre talking about food and water. But if you want rational, well-reasoned investments, you need to look at growth stock mutual funds and paid-for real estate. Thatís what I do!

- Dave


Number of payments isnít the problem

Dear Dave,

Why do you think debt consolidation is such a bad thing?



Dear Tessa,

Debt consolidation is a bad thing because it makes you feel like you really did something to get out of debt and change your financial world when you didnít. People come to me all the time saying stuff like, ďDave, I got a second mortgage. I paid off all my debt!Ē Well, no you didnít pay off all your debt. You just moved it around.

Thatís part of the catch when it comes to debt consolidation. If you get a lower payment and move things around a little bit, you feel like you actually accomplished something. The problem with that is you donít do anything to address the real problem, which is you.

Interest rates arenít your problem, and the number of payments isnít your problem. Your problem is the person you look at in the mirror every morning, Tessa. Until you fix that person and get mad enough at your financial situation and the real cause of it, youíll never make any progress toward getting control of your finances.

Trying to borrow your way out of debt is not a good plan!

- Dave

Extravagant giving, foolish spending?
April 1, 2014

Dear Dave,

My husband and I are debt-free, and we have several hundred thousand dollars in savings. We pay for our children and grandchildren to visit during Christmas each year, but my mother thinks this is foolish spending. What do you think?



Dear Linda,

Iím sure your mom loves you guys a lot, but sheís wrong twice on this one. First, she should mind her own business. Second, you guys have obviously worked hard and been extremely smart and disciplined with your finances. For someone in your situation, bringing your family together for one of the most important days of the year isnít foolish on any level. I think itís awful that youíre even having this conversation with her.

One of my great dreams years ago was to have the ability to do things like that for my family. When I was 22, I worked for a real estate guy who would bring his entire family in from all over the country once a year to go skiing for a week. He and his wife would pay for everything. They would rent a nice chalet, and spend that time having fun as a family and growing closer together. I sort of borrowed that idea a while back. Once a year weíll take all our kids and their spouses on a nice vacation. We pay for everything, and itís just one of our gifts to them because we love them.

So, I think your mom is completely wrong. There are three things you can do with money: spend, save and give. Trust me, giving is the most fun of all!



Book a hotel room without a credit card?

Dear Dave,

Is it possible to book a hotel room without a credit card?


Dear James,

Absolutely, it is. Just use a debit card.

I donít have a credit card. When it comes to finances, the only pieces of plastic youíll find in my wallet are two debit cards - one for my business, and the other for my personal account.

A Visa or Mastercard-branded debit card can be used anywhere credit cards are accepted. And the best part is that youíre not borrowing money when you use one. The funds come directly from your checking account. Some hotels might put a temporary hold on your account for the amount in question, so you need to make sure you actually have the money in the bank. But that just makes sense, doesnít it? You shouldnít be traveling without money in the first place.

If youíre too broke to travel, then you need to stay home. Pretty simple!



Financial Russian Roulette
March 25, 2014

Dear Dave,

My wife and I are debt-free except for our home. She travels one week per month and charges her expenses to a personal credit card for reimbursement later. Iíd rather we open a checking account with debit card privileges just for these expenses. What do you think?



Dear Dustin,

Iíve got to say I like your idea better. The problem youíre both facing now is this: if her company ever shuts down, thereís a good chance you guys are stuck with credit card debt.

Years ago I had a client who was working for a company, and heíd run up travel and business expenses on his American Express card. Like your wifeís situation, his company would then reimburse him for expenses. Then, he made a business trip to Europe, and, while he was there, his company asked him to pick up some computer equipment. The cost of the trip and equipment was about $22,000. When he returned to the office with all the computer stuff in tow, the front door was padlocked. The IRS had shut them down, and they went into bankruptcy. And guess what else? He never got the $22,000 from the company!

Credit card companies donít care about the circumstances. They want their money, period. You guys have done pretty well if youíre debt-free except for your home. But your wife is playing a game called Financial Russian Roulette, and it could backfire on you both at any time.

Never take personal responsibility for company expenses.



Trading debt for a career

Dear Dave,

Iím considering a career change and becoming a financial advisor. It would mean a 45 percent cut in salary for three to four years, and Iíd have to take on debt in order to survive the cut. Is this a smart move?



Dear Travis,

No, itís not. You didnít give me a lot of details about what kind of ďfinancial advisorĒ youíre thinking about becoming, but there are all kinds of people who put themselves in the category of financial advisor. A little voice in my head tells me youíre actually talking about life insurance sales. If thatís the case, then there are some things you need to understand. One, you wouldnít be a financial advisor; youíd be an insurance salesman. And two, thereís about an 80 percent fallout in that world. Eighty percent of the people who start as insurance salesmen donít make it in that line of work.

Now, you could be making $200,000 right now. And if that were the case, youíd still be making good money while this new career takes root. Still, Iím not going to send you into debt for a career change. Thereís got to be a way around that, whether itís delivering pizzas at night or beginning your career change on a part-time basis before making the jump.

Travis, I want you to live your dream. I also have no qualms about you going into the financial world if itís what you really want to do with your life. But Iím not going to tell you itís OK to go tens of thousands - maybe even hundreds of thousands - of dollars into debt to make it happen. Going deeply into debt to become a financial advisor sounds pretty oxymoronic to me. Doesnít it to you?

Donít do something really dumb with money in the name of advising other people on their finances. That just seems wrong


Keep the lifestyle simple

March 22, 2014

Dear Dave,  

I recently got a new job that will increase my income by $20,000 a year. Iíve got $65,000 in debt, and Iím trying to pay it off, so I know I need to adjust my budget. Do you have any suggestions for a situation like this?  

- Mitchell  

Dear Mitchell, 

Congratulations on your increased income! The first thing Iíd tell you is not to get used to any permanent luxuries while youíre paying off debt. Go out and celebrate with a really nice dinner or something like that after you get your first paycheck. But donít go nuts or pick up any big, new stuff. The more you put toward debt, the faster it goes away.  

Iíve been doing this financial thing for a lot of years, and the one thing Iíve found that gets people out of debt is passion. I want you to be so passionate about getting out of debt that you donít even consider doing anything else until itís all gone. Your thought process needs to be, ďWow, I got a new job making more money. I can get out of debt even quicker!Ē  

Again, Iím okay with you adjusting a bit that first month and having a little fun to celebrate your good fortune. But after that, I want you to turn around and attack the debt with even more intensity than before. Way to go, Mitchell!


Giving a tenant mercy

Dear Dave,

I own a one-bedroom condo that Iím using as a rental property. The current tenantís old agreement is up soon, but she signed a new lease less than a month ago and gave me a deposit, plus the first monthís rent. Just the other day, she called and wants to back out of the agreement. She said she discovered after she signed that her ex is having serious health problems, and she needs to move to help take care of their kids. What do you think I should do?


Dear Flavia,

I own a bunch of rental properties, so I know for a fact that as a landlord you run into all kinds of situations. Some are more genuine than others. I would want some proof as to whatís going on, but on the surface it sounds like sheís got a valid reason for wanting to cancel the agreement.  

Basically, sheís asking for your understanding and mercy. If it were me, and what sheís said turned out to be true, Iíd try to lease the place to someone else as quickly as possible, and Iíd refund her the deposit plus any money it doesnít cost you in the process. In other words, if it took two weeks to find another tenant, then Iíd give back the deposit and two weekís rent. Of course, if sheís in really bad shape-and youíre on solid enough financial ground to withstand the blow-you could let her out of the agreement completely and move on to finding another tenant.     

You donít want to profit from someone whoís genuinely struggling. But you have to look out for yourself and, if possible, try to break even. Regardless, I wouldnít take advantage of anyone whoís truly going through hard times. Thatís just not right.





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