海角大神

It鈥檚 Monday again, and that means it鈥檚 time for another Reader Mailbag.

I think I read an old post where you gave a suggestion into when it is good to utilize a credit cards rewards program and when it isn鈥檛 such a good idea. I don鈥檛 remember too much about the post but I think it鈥檚 somewhere along the lines of 鈥測ou should sign up for the rewards program only if a certain condition is met鈥�. I am trying to see whether or not I should keep my bank鈥檚 (Wells Fargo) reward program and it has an annual fee of $20.
- Raymond

Here鈥檚 my philosophy for rewards credit cards in a nutshell.

First, if you鈥檙e not earning multiple percentage points in rewards, don鈥檛 bother. A good rewards card will earn you more than 1% back in rewards. Some cards in some situations can earn you as much as 4% back. Don鈥檛 waste your time with a card that earns less than 2%.

Second, if those 鈥渞ewards鈥� are intrinsically tied to points that are very limited in terms of what you can use them for, don鈥檛 bother. If your 鈥渞ewards鈥� are tied to some catalog of consumer goods set up by your credit card holder, don鈥檛 bother with the card unless there鈥檚 some explicit way of maximizing that. For example, our Amazon card requires us to explicitly go to a catalog site and choose to use our rewards on Amazon gift certificates, which we can then use on all sorts of things.

Third, if the card鈥檚 rewards program encourages you to spend more at retailers that you normally don鈥檛 use, don鈥檛 bother. A rewards program should never cause you to alter your spending habits in the direction of spending more. Instead, look for cards in line with how you already spend your money, such as cards tied to the gas stations you use, the grocery stores you use, or aren鈥檛 tied to any retailer at all.

Use those three rules and you鈥檒l filter out the vast majority of rewards programs. Stick with one that makes it through that trial by fire.

How did you get over the fear of introducing your blog to those closest to you? Weren鈥檛 you afraid they were going to know how deep your financial hole was? Did anyone judge you when you did reveal it?
- Gina

I really didn鈥檛 worry about it at all.

One big reason I started The Simple Dollar is I wanted to convince my friends and some of my family that it was okay to talk about money issues, particularly with me. I decided the best way to make everyone feel more comfortable about it is by confessing my mistakes right off the bat.

It actually worked. While it hasn鈥檛 wound up causing many big roundtable discussions about money, I have had many money-related one-on-one conversations with my family and friends about financial issues. They already know that I鈥檝e messed up badly when it comes to finances and they also know I鈥檝e done the footwork to figure out how to fix it. Add that into the fact that they know me personally and (most) judge me to be reasonably trustworthy (I think, anyway), they鈥檙e willing to talk to me about it.

I鈥檓 thrilled about it.

Another thing: if someone is going to look down at me because I鈥檝e confessed my mistakes publicly and am working to fix the problems, I don鈥檛 really think too much of them. No one is perfect. Every single person you see makes mistakes 鈥� and they鈥檙e often big ones. If they simultaneously look down at me but, at the same time, don鈥檛 have the courage themselves to publicly share their life mistakes, I don鈥檛 really have a whole lot of respect for that.

How do you decide where to draw the line when discussing elements of your life?
- May

With an audience as large as The Simple Dollar has, this is an issue I鈥檝e considered quite a lot over the years. I have a pretty set policy at this point.

If it directly affects just me, I鈥檓 pretty open about it. If it affects my wife, I know what boundaries she has about discussing elements of her life. The same goes for my kids 鈥� my wife and I have a policy when it comes to sharing about them.

I have a few minor disabilities that I don鈥檛 usually discuss because they usually don鈥檛 affect anything and I鈥檓 so used to them that I roll straight through it (for those curious, I am completely deaf in one ear, almost completely blind in one eye, and basically have no thyroid gland), although they have affected some of my financial decisions on occasion. In fact, those three minor issues might actually fill in a few little gaps for long-time readers.

When it comes to my family and friends, I obfuscate heavily. I will combine elements of different people. I will check with people before I write about them in any way that鈥檚 specific at all and allow them to read it first and veto it if they choose (no one ever has). I don鈥檛 feel it鈥檚 right to invade their privacy or dignity. I do have some blanket permissions from a few people very close to me to write about them ( being one).

I鈥檓 also careful with specific pieces of information that are irrelevant to the issue at hand but which could be used for identity theft. I often completely substitute false information in these cases.

There are times when these concerns can sometimes interfere with a full discussion of a financial issue on The Simple Dollar. In those cases, I usually do the best I can to make do while steering clear of those concerns. More than once, this has caused me to be strongly attacked by readers.

I am 31 years old with a comfortable income and no kids. I currently max out my Roth IRA contributions with a standing withdrawal from my bank account. I recently moved to Finland, so I am no longer receiving any 401(K) benefits. My 401(K) investments I had accrued with my employer in the U.S. is now just sitting in a Fidelity account. Is there any reason to roll this into a regular IRA? Or do I just move over some of it to the Roth IRA and stop contributing for 2010?
- Angela

The reason one would want to roll over a 401(k) is so that one has better access to investment options for that money. If you鈥檙e really happy with the options that Fidelity gives you for the 401(k), leave it there. Otherwise, I鈥檇 roll it over into a traditional IRA with an investment house that you trust (I usually recommend Vanguard).

A separate question revolves around converting a traditional IRA into a Roth IRA. 2010 is the year to do this if you鈥檙e going to do it because . Anyone can convert to a Roth, pay the taxes, and secure untaxed income in retirement. Should you convert? If you believe your tax rate in retirement will be lower than your tax rate now, then it鈥檚 probably worth your while.

No matter what, it shouldn鈥檛 affect your contributions for 2010. You should absolutely continue to contribute towards your retirement.

I have question about closing a Roth IRA to pay off debt. Currently I have 7500 in credit card debt and my wife has about 11,000 (once we use our tax return to pay off some of her debt). I had a mutal fund that isn鈥檛 performing very well, I have had it for 10+ years ($1600). I鈥檓 closing the account and adding it to an emergency fund that has about $150. I also have a Roth IRA with about $1600 in after an intial investment of $4000 (during the tech boom). My question to you is should I close this Roth IRA and use it to pay off debt, knowing that I will get penalized for closing it and taxed or should I just transfer it to a another account (Vangard or Fedelity Roth IRA)? Can I write off the Roth IRA loss ($4000 to $1600) on my tax return?
- Oscar

Your only penalty here would be losing the balance of your Roth IRA without converting it. Your basis for the Roth is the amount you put into the account 鈥� $4,000. If you take out the full balance 鈥� $1,600 鈥� it鈥檚 just a straight loss of $2,400.

Can you claim that on your taxes? You can only claim it if you close ALL of your Roth IRA accounts at the same time. This sounds like it鈥檚 your only Roth IRA, so you would just need to close this one.

If you wish to move your Roth IRA, contact the business to which you want to move the account and explain your situation. They will be able to help you move the account.

I will be getting back a substantial reimbursement from he IRS but I owe just as much on a credit card which has an interest rate of 23%. Since I do not have any emergency fund, I was thinking of just banking that money and continue paying my credit card at approximately $500. a month. I know the logical thing to do is pay off the credit card and save the $500. monthly but I鈥檓 actually almost afraid of doing that. I live with my boyfriend and he is currently facing the possibility of a lay off. What are your thoughts on this. Should I save the large sum or pay off the credit card with it?
- Yomaira

If you鈥檙e facing the strong possibility of a layoff and you would have to support both you and your boyfriend with your savings, then you should bank the money and keep making minimum payments on that debt. A job loss is a significant risk with some pretty strong consequences.

Once the situation is clear, however, you should keep an emergency fund of about $1,000, take the rest of it, and make a giant payment on that credit card.

The most important thing you can do in this situation, though, is get out of the habit of using credit cards. Put them in a place where they鈥檙e hard to reach and learn how to live without them for a while. One common suggestion is the old 鈥渂lock of ice鈥� trick, but that鈥檚 often fixed with a hammer. I like the 鈥減ut them in a coffee can and bury them鈥� trick better.

My husband and I had a wonderfully misspent youth and much of our older lives. We were not financially wise and the way things worked out we moved around a lot to stay employed. Moving takes money and we find ourselves at the brink of retirement with insufficient savings. Worse, we do not have a house that is even close to paid off. And finally, my husband is being forced to retire in June pushing us to make some financial decisions.

Our current house is at the low end of the market for where we live. We confirmed with a real estate friend last night that pretty much any housing option in our town that puts a roof over our heads will cost about what we are currently paying. I am still employed in a good job but we will not be able to keep the house and our current expenses with just my salary. My husband can likely find some contracts and consulting but not full time employment at the salary he was making before.

We could move somewhere else. We have checked the MLS in areas where we used to live or would consider moving and we could have a house for much less than we pay here. Only if we move, I am walking away from a good job in an uncertain economy. At my current age I am competing with younger, fresher, and cheaper talent. There would be no guarantees beyond our fairly minimal retirement benefits for either of us.

The bottom line is that where we are we have one good job but living expenses beyond our means. We could move to where life is cheaper but would then have no additional income or guarantee of job. What to do鈥�.?
- Delores

The first thought that comes to mind when I read your story is cohabitation. Do you have a room or two in your house that you could rent out to someone, perhaps a college student or someone in town for a short period for a consulting job? That鈥檚 one efficient way to reduce the burden of your mortgage.

The second option I would suggest is polishing up your resume and seeing if you can find work in the areas where you would consider moving. There鈥檚 no penalty in at least trying to find work, even if you aren鈥檛 successful. If you do find a job there, problem solved.

The final thing I would do in your situation is encourage your husband to do the same thing you鈥檙e doing. He should be beating the pavement hard looking for opportunities. Now is the perfect time to hunt up old colleagues to see if they鈥檙e aware of any work opportunities.

Good luck!

When I bought my car almost 3 years ago, I had 2 90-day late marks on my credit report. I didn鈥檛 know about them until I got my car loan. At that moment I was in a bad spot 鈥� my home and lifestyle mandate that I have a vehicle and my old one was dead in the parking lot (and yes, I was also young and dumb, excited to be buying a new-used car, and fresh out of college making good money while my student loans were still in deferrment). So I got stuck with 11% interest rate and was too stupid to do anything about it for a while.

When I realized I can probably renegotiate my interest rate I assumed I should probably work on improving my credit score first so I鈥檇 have some negotiating power.

The two late pays were real, although both were honest mistakes (one was an account with an annual fee that I forgot to close, and the other had to do with the post office not forwarding my mail for a few months). They are both off my record now (worked with the credit card company to remove the one where I wasn鈥檛 getting the bill and the other one expired) but I鈥檝e made some other mistakes. Nothing big. There have been several times when my car payment was 1-3 days late. And there鈥檝e been some times when I had to defer a payment (within in the terms of the loan agreement) This wouldn鈥檛 be on my credit report but the credit union that owns the loan will surely know about them. I鈥檓 afraid it will go against my plea of 鈥淚鈥檓 a good customer. I always pay my bill. Please give me a break.鈥�

I鈥檝e also used my credit cards more than I should have so my debt-to-credit ratio is high.

Anyway, I thought you might be able to provide some insight about negotiating a lower interest rate on an existing loan.
- Julie

The first thing you need to do is go take a look at your credit report. Visit and find out what your credit report looks like. You need to at least know what facts about you are being shared.

If you find anything on there that鈥檚 inaccurate, chase it down and get it off the report. This might take some time and some phone calls, but it鈥檚 usually not too terrible and it can make a big difference.

Once you鈥檝e verified that the report is accurate and as good as it can be, you鈥檒l want to head to a local credit union. Explain that you signed a very poor car loan and would like to refinance it. I don鈥檛 think direct negotiation with your current loan holder will do you much good here.

Good luck!

My husband and I and 2 kids love to go out to eat, especially Chinese or Thai food. We have done a great job in curbing our 4 times a week going out to once a week. Although both of us work, we are working to get debt free and any money saved goes to paying off debt. Hopefully we will only owe a mortgage by August. I am not too worried about the mortgage b/c interest rate is 4.75%. Back to my question: I really thinks my Dear Hubby believes that he is a king. When we go out to eat, he has to have the most expensive dinner and soup and salad and appetizer or sushi. The kids have come to expect this also, but we end up only ordering one thing between the two of them. I have finally convinced my dear hubby to drink water so the kids will not want a drink either. Our bill comes out to be $45 or more sometimes. And that is after I end up eating very light to compensate for his extravagance. We discuss this all the time and he feels I am wrong wanting to limit the amount he wants to eat. I feel that we should be able to indulge on special occasions (bdays and anniversaries) and on other going out days, eat sensibly. So who would you say is in the right?
- Nisha

If going out for a nice meal is something that your husband deeply values and he鈥檚 frugal in other areas of his life, you鈥檙e spending less than $50 to feed your whole family, you鈥檝e cut dining out down to one night a week, and you鈥檙e spending quite a bit less than you earn, I think I have to side with your husband on this one.

Small extravagances, if done with forethought and moderation, are part of the spice of life and can contribute greatly to one鈥檚 enjoyment of life. If your husband鈥檚 one real splurge in a week is a very nice meal 鈥� one where the total family bill is still less than $50 鈥� I see nothing wrong with it, particularly if you鈥檙e still spending substantially less than you earn ater that meal.

If your husband spends money left and right, then there鈥檚 a bigger problem at work here that involves overall responsible use of money and deserves special treatment and long conversations. But that doesn鈥檛 sound like the case here.

Why won鈥檛 you review [personal finance book X]?
- Sheila

First of all, there are thousands of personal finance books I鈥檝e never reviewed and there are more printed every week. I have a single review slot each week to fill.

Because of that, I have to be somewhat selective about what I review for the site. I try hard to pick books that say something interesting to me and also to my readers.

At the same time, I try not to review books that engage in practices I dislike, like selling fear as part of the financial message or offering up highly questionable tactics without discussing the risks or drawbacks of those tactics. I don鈥檛 think books like that have value and I won鈥檛 waste editorial space on them.

After that, a major factor is availability. Does my library have it? Will the publisher send me a review copy of it? If one of those two is true, I鈥檓 much more likely to review it.

Got any questions? Ask in the comments or send me an email and I鈥檒l try to include it in a future reader mailbag.

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