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Advice for Financial Fitness
Dear Dave, My husband and I have about $60,000 in credit card debt. He doesn’t feel bad at all about it, but I’m determined to clean it up and start living right with our money. I’m starting to get tired of trying all by myself, though. What can I do to reach him? -Donna Dear Donna, The last thing you want to do is go around yelling “Dave said do this,” and “Dave said do that.” If you start hammering him over the head with that kind of stuff, he’ll tune you out in a heartbeat. Right now, let’s just be patient and keep talking to him about the issue. He may need some time to think things through and realize how important this is to you. Try adding up all your payments to show him just how much of your money is going into other people’s pockets every month. If you’ve got $60,000 in credit card debt, it’s a lot! You might also take all those payments and show him how much you guys could save and invest if those credit cards were gone. I’ll bet there’s lots of stuff you’d both like to do but can’t afford because the credit shark is gobbling up all your cash. Your income is your best wealth-building tool, Donna. Without all those payments, you two could save and invest like mad, have some fun, and retire a wealthy little old couple. Right now you’re both slaves to the credit card companies. But once he has a chance to process this information, I’m guessing you’ll see some righteous anger out of the guy. And hopefully he’ll be motivated to join the fight! -Dave Dear Dave, My father-in-law is telling us we should apply for an interest-only loan when we buy a house and then pay extra on the principle. What do you think about this idea? -Nick Dear Nick, Interst-only mortgages are horrible. Stay away from them! Lots of folks get into these traps by promising themselves they’ll pay extra on the principle. But according to FDIC statistics, 97% don’t re-pay on their loans. Some lenders will also try to use a flashy or “sophisticated” analysis to convince you this is a great way to get into a great house. But the funny thing about most of these sale pitches is that there’s no mention of the fact that you’ve exponentially increased risk. Risk can be mathematically entered into the equation, making your supposed gains disappear. The best think you can do-short of saving up and paying cash for a home-is make a huge down payment on a conventional 15-year, fixed-rate mortgage. Then, pay it off as quickly as possible. When you have an interest-only loan, you end up paying only on the interest. And that’s a great way to find yourself in debt for the rest of your life! -Dave Dear Dave, I’m a senior in college, and my roommate just got a credit card that features airline miles. He wants me to get one, too, so we can take a trip together at the end of the year. What do you think about this idea? -Tim Dear Tim, This is a bad idea on so many different levels. First, you’re close to graduation and beginning your real life. You don’t want to start out with a bunch of credit card debt hanging over your head. Second, have you seen the restrictions on airline miles lately? Jupiter has to align with Mars while you’re standing on one leg to cash in on those things. It’s ridiculous! Plus, statistics from Consumer Reports show that 78% of all airline miles are never redeemed. What does this mean? It means in most cases people end up with no cool trip and a bunch of debt. I’m not against going to nice places and having fun, and you probably deserve to celebrate a little after finishing college. But going into debt for it is a really bad idea. Just save up and pay cash for a trip, Tim. Today, many debit cards have airline miles associated with them. So there’s no reason to take a chance with credit cards. -Dave
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Today's date: August 28, 2008
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