海角大神

It鈥檚 Monday morning鈥� that means it鈥檚 time for another reader mailbag!

My girlfriend bought a 2006 Chevy Cobalt in March 2009 because she wanted dependability and good gas mileage. She has put 31000 miles on it since then. She wants to settle down near school and doesn鈥檛 need the car anymore/can鈥檛 afford the insurance that goes with it. The problem is that she has had it for such a short time that she still owes most of the principle. Here are the numbers:

Purchased for $10086 in March 2009 and financed through the dealer at 15.95 APR
She has $9077 left on the principle by making minimum payments of $246 and insurance at $200
She is 20 years old and has one wrecked car under her belt.

What are her options, if any?
- Michael

15.95% APR is practically extortion on a car loan. Based on that number, I鈥檓 going to have to assume her credit was pretty poor at the time and is probably still not great.

The problem with this situation is that she is deeply underwater on the loan. I went to and looked up values on several different variations on the 鈥�06 Cobalt and found that they averaged around $5,500 in resale value.

If she鈥檚 really not intending to drive it any more, her best bet is to find a garage to park it in, remove the insurance, and keep making the payments for a while. She should also look into refinancing that horrible loan 鈥� she should try visiting a local credit union to find out what her options are.

I鈥檓 a 21 year old 3rd-year college student, looking to be in college for at least another 6 years (graduate school) and I鈥檝e had to take out loans to pay for it. Currently, I owe about $2500 in unsubsidized loans and $6000 in subsidized. I鈥檒l be making about $2000 between my taxes and a research project I signed up for, which is almost enough to pay off this year鈥檚 unsubsidized loan. Alternately, this is enough to go on a trip to England with my friend and pay for a tour of all the old English castles (I鈥檇 only need a few hundered dollars for shopping money and I鈥檇 be set with breathing room). This is a rare chance because I want to travel, but I don鈥檛 want to do it alone and this is one of the only times I know that I鈥檇 have a partner I trust ready to come along. Also, since I鈥檒l be adding to my debt with each year of college, my unsubsidized loans would only be paid off for a year. I鈥檇 like to go to Europe now, before I get a career or family to hold me here, and it sounds like a wonderful opportunity, but I know the responsible thing to do is pay off what I can of my debt so I don鈥檛 have a problem later. What should I do?
- Kat

Obviously, a trip to England right now isn鈥檛 the financially strongest choice. Travel is pretty obviously one of those things that is in the 鈥渨ant, but not need鈥� category that gets many people into financial trouble.

However, your situation is a bit different. You are not going into further debt to make the trip (it seems like) and, apparently, the trip is only costing you a few hundred dollars in spending money. I鈥檓 not sure how exactly you worked out that opportunity, but it sure sounds like a good one to me.

If the total cost of that trip really is only in the $300 range and you鈥檝e been dreaming of this kind of travel for a while, I鈥檇 encourage you to go on the trip. However, if that鈥檚 not a true picture of the cost and you actually are paying for the airline ticket, lodging, etc. (which would blow $300 out of the water), I鈥檇 probably reconsider it.

I鈥檓 a third-year college student on track to graduate in 2011. I started out my first two years at community college, living with my parents to save money, and then transferred to an extremely prestigious state school last semester and spent last fall away from home. Unfortunately, the school was a bad match for me, and having no income, I was having to live on the surplus of my student loans, which struck me as really dumb; I couldn鈥檛 live so frugally that my expenses matched my income of $0, so I transferred again. Now I鈥檓 living at home to reduce expenses, attending a a school that allows me to tailor my educational activities to more strongly match my career goals. I鈥檓 also trying to find work in freelance web design and writing, and considering taking on a part time (or full time) job once I start at my new school and see what the work load is like. By my graduation I want to start a business and be self-employed freelancing & writing history educational materials for homeschoolers, private schools, and other independent learners.

What I need perspective on is how to invest my income, once it starts. When I finally do get work (I鈥檓 investing 5-10 hours a week on looking for jobs and applying to freelance positions, as well as work-related activities like studying to pass web programming exams and improving my writing), should I try to immediately put as much money as I can toward my debts to lower the overall interest I鈥檒l have to pay, or do I invest some of my income in creating a financial cushion for when I launch my business and move out of my parents鈥� house? The unsubsidized federal loan I took for my last school was $3,500 for my first junior semester. I was awarded $3,750 for this upcoming semester in a slightly better financial aid package (about half of that is a subsidized loan).

If I continue receiving similar financial aid in my next two semesters, my debt will total something around $15,000. I don鈥檛 want debt payments to overshadow my future or force me to work jobs I don鈥檛 want because freelancing won鈥檛 support a debt payment and living expenses. I want to pay my debts off before I move out, and I鈥檇 like to be out within a year of my graduation, so by 2012. What鈥檚 the best way to handle this debt when my income isn鈥檛 certain? Should I just throw all the money I do get at paying off my debts as fast as possible? Should I wait until I鈥檓 done with my education, save all my income now, consolidate my loans, and try to pay off as much as possible with the benefit of interest? Should I be seeking a regular job and put all the income from that job into a loan payment? I can鈥檛 seem to figure out the best way to get to my goal of freedom from my debts and independence to head out on my own with so many variables.
- Kari

You are putting the cart way, way before the horse here. Do not invest even a single drop of energy counting your chickens before they hatch.

Focus exclusively on making this business work. When you have income from this business, keep it in a savings account and make sure you have the income taxes fully covered.

Don鈥檛 even worry about investing it until you have a substantial amount of money built up in that savings account because, quite likely, that account will have to be used for expenses related to your business 鈥� replacing your computer if it breaks down, for example.

Once you do have that money, if you want debt freedom, throw some/most of it at your student loans. That, however, is something to not worry about right now. Get your business functioning first.

I鈥檝e tried following your bread recipe a few times, but every time, the dough doesn鈥檛 really rise at all, or just a little bit. This seems to happen with other bread baked goods that involve yeast as well.

As a result, the bread/crust/whatever ends up being super doughy and chewy, not at all the consistency of what a bread should taste like. Do you have any suggestions on what I could change in order to keep the yeast from dying or not working? What sort of steps do you think would most impact the yeast and allowing the dough to rise properly?
- Eric

That sounds like bad yeast, to tell the truth. Have you had the yeast for a long time?

The best way to prepare yeast for use in a recipe is to put the yeast in warm water (with a little bit of sugar diluted in the water) and let it sit for fifteen or twenty minutes. It should start making little bubbles near the end of that timeframe as the yeast grows, eats the sugar, and produces gas.

If your yeast doesn鈥檛 produce any bubbles when you do that, toss the yeast and buy some new. In terms of the active dry yeast you typically buy in a store, I鈥檝e had the most success with Red Star.

I am a 50 year old woman, laid off last year from a dying industry (newspapers). I have health insurance through my husband鈥檚 job, so I鈥檝e been free to start my own freelance business. Through word of mouth, I have done very well. My hourly rate is double what I made at the newspaper. I鈥檓 good at what I do, and it鈥檚 fun, and I have all the work I can handle.

But there is a cost. I鈥檓 a terrible procrastinator. I miss my colleagues. I like working in an office. I spend way too much time reading blogs and catching up with facebook, so I end up working deep into the night. Work fills my weekends, too, and cuts into family time.

Now I have a job offer. It鈥檚 at a very interesting and culturally important place where I鈥檇 really, really like to work, and 鈥渞ecession proof,鈥� they tell me, and 40 regular hours. In many ways, this is my dream job. But the pay is half my old job pay (a quarter of my freelance rate)! They won鈥檛 budge on salary, and they won鈥檛 negotiate a deal like more vacation or flexible time off. With 220 applicants, they don鈥檛 need to negotiate. I鈥檓 very blessed to have been offered it.

So, what to do? Freelance, freedom, flexibility, procrastination, disorderly life? Or stability, low pay, retirement fund, lifetime benefits, regular hours and weekends free? They鈥檙e both good. I鈥檓 going nuts deciding.
- Francesca

Different people have different strengths in life. Office work doesn鈥檛 click with everyone. Entrepreneurship doesn鈥檛 click with everyone, either. Some people succeed with absolute hands-off freedom, while other people succeed under a strict regimen.

Based on your email, I think the job is right for you. I would go for the job. I would also try to fill some of my spare time with a small amount of freelance work, which might be easier for you to focus on if you have a lot of social interaction during the day at your office.

I am getting married this summer and my fiance and I want to open a joint bank account. Any advice?
- Jeff

By 鈥渂ank account,鈥� I鈥檓 going to assume you mean both a checking account and a savings account, likely at a new bank.

If you haven鈥檛 had a joint account before, I would suggest getting a free checking account at a local bank. I would ask your social circle for bank recommendations 鈥� what they use, whether they like it 鈥� and follow their lead towards the local bank with the best reputation.

Why use a local bank instead of an online one? When you first get a joint account, there鈥檚 going to be some adjustment for both of you to get used to the spending habits of the partner. Having access to personnel at a local bank can make this transition a lot easier, as you can actually talk to a person face-to-face if you have issues with account managment or overdrafting.

Once you鈥檙e in sync, you may want to move to one of the many online checking/savings account combos that offer more interest and fewer fees but less customer service.

I have several long held mutual funds.

Seeing as the long term capital gains rates will change at the end of 2010 from 15% to 20%, would it be advantageous to sell near the end of 2010 and rebuy in 2011 in order to reestablish a higher 鈥渂asis鈥� and pay 15% tax now instead of 20% tax later on the gain I have made already. Obviously, this assumes no extension of the 15%.

This would make some sense to me, and I鈥檓 probably not the only one thinking this. Therefore, would you expect a heavy sell-off at the end of this year (from investors implementing this strategy) and thus a negative impact on the market as we near December?
- Kevin

That plan makes sense to me. However, I don鈥檛 necessarily think that selling in December would be a wise choice. Quite a few people seem to be thinknig the same way you are, and that means there鈥檚 an opportunity.

It might make more sense to sell earlier than that 鈥� say, the middle of the year 鈥� and then buy the mutual funds back at the end of the year when lots of other people are selling for the tax gains and, in theory, the market is lower.

This makes complete sense from a game theory perspective, but it has no connection to other economic indicators. If the economy is really booming at the end of the year, the upwards pressure will be greater than the downward pressure (from selling) and might convince some to just hold it through the tax changes.

Honestly, my buying and selling of stocks and funds isn鈥檛 influenced a bit by a 5% bump in capital gains tax. You blow the tax away by selling at the right time (either for you or when you鈥檙e ready to take a big gain).

For those of us considering starting a blog of our own, I am hopeful you might be willing to share your insight as to the best free or very inexpensive places to build that first site. Then, after readership grows, what would your recommendations be for upgrading to a more costly site? I have read your downloadable 鈥淏uild a Better Blog,鈥� and the tips there were wonderful. With your computer/technology savvy, I鈥檓 sure you鈥檒l have some great thoughts and recommendations as to the most cost effective way for a beginning blogger to build their initial site.
- Susan

I started blogging at . The service is completely free for anyone to use and quite a few well-known blogs use it.

The big advantage it offers is that it allows you to discover if blogging really clicks with you before you start investing money in it. Lots of people think blogging is easy 鈥� 鈥淚 just write a post every day, how hard can it be?鈥� 鈥� but it鈥檚 a lot harder than you think. A daily post means 365 interesting ideas a year, each fleshed out. Some people can do that 鈥� others can鈥檛, at least not over the long term. Starting on a free service like that helps you figure out which group you鈥檙e in.

If you鈥檝e actually stuck with it long enough to build a readership, you might want to move to a self-managed domain that gives you a lot more control over site design. There are thousands of such hosts out there. I鈥檇 mostly suggest reading through lots of plans, reading reviews of different hosts, and finding the one that works for you.

I just got my Social Security report, yes my birthday is coming up. I am currently a stay at home parent raising 9 children ages 0-20. I did work for 10 years, so I have qualified for social security at age 65 and will receive some income (if it still exists). However, because I do not have enough work credits in the last 10 years, I am not eligible for disability. Any suggestions?
- Jennifer

I鈥檓 guessing that you are concerned about not having Social Security disability coverage.

The real question you need to ask yourself is whether or not you could live comfortably without the income or work you provide for your family. Since you鈥檙e a stay-at-home parent, you鈥檙e not bringing home any income directly, but you do provide countless services to make your family work. If you were suddenly disabled, would most of those services still be fulfilled? Could your children, for example, pick up the slack of the things you do?

If that鈥檚 the case, I wouldn鈥檛 worry about losing the Social Security disability coverage.

Of course, as the children grow older, you may find the answer to that question changing as your children move out. Of course, at that point, you may want to find work 鈥� and thus you鈥檒l eventually get that benefit back.

I have a couple of CD鈥檚 set to expire in March with ING 鈥� are they worth transfering to SmartyPig just for the better rates? I am not trying to save for anything, just looking to find interest!
- Tim

I鈥檓 a big fan of SmartyPig. I use it myself for specific savings goals. Plus, the guys are local (Des Moines) and I鈥檝e met with them a few times, so I know there鈥檚 good people working there.

SmartyPig has great rates, but their website is strongly set up for saving for specific goals. One method would be to simply set up a very, very large goal and then set up an automatic savings plan for that goal (which is SmartyPig鈥檚 strong suit). That way, you can watch it build slowly towards that goal while still earning their nice interest rate.

In your situation, that鈥檚 probably what I鈥檇 do. SmartyPig has a history of being very competitive with their interest rates, so if you鈥檙e just looking for rates, they鈥檙e a good choice, too.

Got any questions? E-mail me with them or ask them in the comments and I鈥檒l try to get to them. However, I do get dozens and dozens of questions a week, so I can鈥檛 always answer every question I get 鈥� I usually just go through questions until I find ten or so interesting ones for a given mailbag.

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