Minivans a good family-car buy?

Minivans aren't cheap, but they may be worth it for your family (Question #4). Also in today's Reader's Mailbag: saving for school (#1), splitting mortgage payments (#6), and finding a credit union (#8).

Q1: Saving for education
Currently I am 26, my husband is 27. We both work but he is in the construction industry so is laid off usually every winter. He does a paper route and collects unemployment, so he still brings in about $35,000 a year, often more. I make $30,000 a year, plus I have a weekend job (tipped) where I bring in maybe $500 a month. I have ten percent going in a Roth, by husband has 6 percent going into a Simple IRA. His retirement balance is about $6,000 while mine is $12,000. Because I am somewhat unimpressed with our retirement account provider through my work, I have a seperate Roth with Vanguard that is holding steady at $7,000. We have $130,000 yet to pay on our mortgage. We have no children but would like to start trying in a year or two. My question is this: I have $12,000 in a savings account (ING) that I’m saving for tuition. I am in a Master’s program for Public Relations – it is a two year program that will cost me about $50,000 when all is said and done. I’ve already paid the first semester ($7,000). I’ve received one $3,000 scholarship but my work is not contributing at all. I believe my job prospects will improve vastly when I have my masters, however I have never taken out a student loan and don’t want to. It may be a possibility to borrow money from my mom to pay tuition. Should I knock down our retirement contributions so I can pay for tuition as it comes, or just keep saving and hope we can scrimp enough to pay tuition each semester? I hate to stop contribution to retirement at the pace I’m at – I am so proud of our retirement savings. I am fine paying our minimum mortgage as we started at $150,000 just five years ago and have paid an extra thousand or more each year up until now.
- Jill

It seems as though you have a clear goal and your only real concern is whether or not you should redirect your retirement savings into additional savings for this goal.

The first thing I would suggest is to figure out whether you’re on par with regards to your retirement savings at this point. I would use a retirement planner and make sure that you’re at least somewhere in the ballpark of where you need to be for retirement.

If you’re doing well for retirement, I would cut back on the retirement savings and redirect the money into educational savings. If you’re not doing well, I would take the slow route, maintaining your retirement and looking for other ways (more earnings, perhaps?) to bolster your education savings. Either that, or bite the bullet and use an educational loan.

You may also want to consider a 529 savings plan for your college savings. If you use the earnings in that account for educational purposes, you don’t have to pay taxes on the accrued interest.

Q2: Consolidating private student loans
I currently owe approximately $120,000 in private student loans from college and graduate school. I am looking to consolidate them to get control of the monthly payments (right now, it’s around $1500 a month). I also two small government loans, but I do not want to consolidate them with these. The only information I’ve found is Chase and Wells Fargo are possibilities, but I will never go with them, they’ve been a nightmare to work within the past. I’m considering a loan from my credit union, but my credit score is not good. I do not own a house and I am single. I make a little over $50,000 a year between my main job and a part-time job. Are there any other options out there to consolidate other than Wells Fargo and Chase, and are they safe? Or does the credit union have a potential option?
- Pam

I’m afraid that if you have a poor credit score, you haven’t got a very good chance of reducing your interest rates lowered via a private student loan consolidation.

When you’re consolidating a set of private student loans, you’re essentially just trading one student loan for another one. You’ll go through many of the same evaluations as a person would when applying for a normal student loan and will get an offer that reflects upon your current credit standing and your income.

My suggestion to you would be to focus on repairing your credit above all else. If you are earning $50,000 a year, your monthly student loan payments are manageable if you keep your personal life under control and live lean. Keep current on all of your debts for a while.

When you do consider consolidating, I would look to the banks that you’re already borrowing from (and thus have established a solid payment history with) and inquire with them about a consolidation. If you wish to seek other banks, Chase and Wells Fargo are certainly options, as is your local credit union.

Much of this hinges on having a solid credit rating, however. If your rating is poor, you’re not going to get the best rates on a loan consolidation.

Q3: Gift exchange ideas
My extended family is getting together the week after Christmas. We always do a gift exchange, but every year it seems like everyone gets something they don’t want. We don’t want to abandon the gift exchange, but we don’t want to just tell each other what we want, either. Do you have any ideas?
- Carrie

My suggestion is that you shouldn’t worry so much about the gift, but instead focus on the exchange. How can you make the exchange itself more fun?

One way to do that is to put some huge restrictions on the gift. This year, everyone in the exchange is giving their favorite movie as a gift. Next year, everyone is giving their favorite book as a gift. What this does is it encourages both givers and recipients to talk about the things they’re passionate about with people they care about.

Another way to do that is to make the exchange into a bit of a game. Try a “yankee swap,” for example. A “yankee swap” happens when everyone opens their gifts in a certain order (usually going around the room). When you open your item, you show it to everyone, then you can “swap” your newly-opened item for an item someone else has already opened. The first person to open doesn’t get to swap when they open, of course, but they instead get the chance to be the last person to swap, choosing from among everything.

Liven it up and make it fun. Remember that it’s about the exchange, not about the gift. It’s about the time spent with loved ones and the shared experience.

Q4: Buying a minivan
I have a 2001 Lincoln Town Car with 150k+ miles on it. I love it, it’s paid for and I budget for its expense throughout the year fairly comfortably.

My wife and I own three dogs and we travel around the country to basset hound rescue events. (I write a mystery series that features a basset hound and I give the proceeds of the book sales to the rescues.

I’m interested in buying minivan for the dogs to travel in on long trips and to be able to hold boxes of books, luggage etc. I’ve even bought some books on how to convert a minivan into a makeshift RV.

I plan on keeping my Lincoln and using the minivan on other than long trips to prolong its life. I know you did lots of research before purchasing your car. I want a functional and comfortable used minivan and want to know your suggestions for thing s like how much mileage, year, model etc that you might recommend considering the way I intend to use it….that is, hauling dogs, long trips and some around town use.
- Tom

Given that you’re going to be driving on long trips with a number of animals on board, my reaction would be that your utmost priority with a minivan purchase would be reliability.

Typically, if you’re looking at a late model used (covering model years from roughly 2004 to 2008), the Honda Odyssey and Toyota Sienna are on top of the pile with regards to reliability, so I would steer you in their direction.

We looked at several Odysseys and Siennas before settling on a great deal on a Honda Pilot (a SUV).

Q5: Credit report questions
I just got a copy of me and my husband’s (of 2 years now) annual free credit reports and have a couple questions for you. I had excellent 25 years of credit and was able to buy a house a little above my means a year before we were married (2007). Despite the slight loss in value, we are managing the payment just fine. Now, with all the credit regulation changes, my credit card limits have all been reduced and my debt/credit ratio is 93% because of my mortgage. My husband’s credit was not that great because he had some late payments on some bills. When we got married, in 2008, we paid off his bills and canceled most of his credit accounts and are using mine as one joint account and several authorized user accounts. We pay them off every month except the mortgage. Now, with our one joint account, his debt/credit ratio is 7%.

My question is, in about 5 years, we want to sell this house and buy farm type property to retire. I don’t think we will have much of a problem but want to ensure we have good enough credit to get a good deal. To improve my husband’s debt/credit ratio further, should we make all our accounts joint rather than authorized user?

How can I reduce my debt/credit ratio other than continuing to pay down the mortgage that is all in my name? Does it really matter, based on our goals to eventually sell the house and purchase something else of equitable value? Between this house and another rental house, I have about $300,000 equity.

Also, the end of the credit report lists about 8 credit report requests that may harm our credit and another list that will not harm credit. I do not recognize any of the names on the list that may harm our credit and we only applied for one, Sears, credit card this year. Do you know why we would have so many names on the list of credit report request that may harm our credit and how we would correct it and prevent these requests in the future? We have already opted out of the permission to allow promotional requests for our credit report.
- Laura

Your best bet for improving your debt-to-credit ratio, short of applying for more cards (which has its own set of problems), is to simply focus on lowering that mortgage. Not only will it improve your credit, it’s also one of the better places to put your money in terms of a secure return right now.

Your husband’s ratio is fine – I wouldn’t worry about a 7% ratio one bit.

As for the credit requests, most of them only have a very short and small negative impact on your score. If you’re seriously worried about them, I would spend some time tracking down where exactly the requests came from. Usually, you’ll find that in some way, you initiated the “hard pulls” (the ones that can have a negative impact).

Q6: Splitting mortgage payments
My current house payment (with escrow for insurance, tax, and FHA insurance) is just over $1000/mo with an actual rate of 5.25%. The loan portion of the payment is around $700. I have been paying $1200/mo to pay down additional principle because I calculated that the small amount each month will shorten the life of the loan significantly. I am wondering if splitting my payment over the 1st and 15th of the month would speed up the payment significantly? My additional payments total to around $2200/year, which is nearly 3 additional payments on the loan. Is there an easy way to calculate the difference that bi-weekly payments would make?
- Alex

The amount you would save by splitting your payment is roughly what you would earn on $600 at 5.25% interest over 15 days. This adds up to $1.31 per payment – in other words, not too much to worry about.

Over a long period, that extra $1.31 will add up, but it will at most add up to a partial single payment at the end of your loan.

My suggestion to you is that if you can automate all of this, go ahead and do it. It will amount to a small bit of savings along the way, particularly if that early payment causes no cash flow issues for you right now.

Q7: Walking away
I am 53 years old. I was married for 34 years and have two grown children, both gainfully employed with retirement plans in place and health insurance coverage. For the most part, my work is done. Just as my husband i were looking toward the future, he was diagnosed with terminal cancer on January 1, 2009 and died in March of this year. Prior to his death, he worked for the same company for 31+ years with good benefits. I work, but it was more to keep me busy than a need for the income. Prior to his death, Jerry and I managed to get out of debt with the exception of our house and start saving. Fast forward 8 months later. When Jerry died, I believed I had life insurance benefits and did not worry overly much. Most of our “emergency” funds were used up during his illness. I took FMLA leave the last four months of his life and took care of him full time. While he had life insurance benefits through his job, I didn’t realize until he was on disability that once you’re on disability, those benefits are substantially reduced. Also, while you’re on disability because of a terminal illness, it’s impossible to get life insurance. It’s like chasing your tail.

Now the situation has changed. Upon his passing, I learned that I have a huge mortgage payment and very little insurance to cover it. I make about $50,000.00 per year. I have collectively $110,000.00 in a 401(k); I have $70,000.00 in savings and except for the house, no debt. I have two cars, both free and clear. That’s it. In a perfect world, I make enough to pay my expenses and to save something every month and enjoy my life; however, the mortgage payment of $1,300.00 on the first and $300.00 on the second is killing me. I have to take money out of savings every month to make ends meet. While the house is (was) in both our names, the mortgage was in his name only. I have not told the mortgage company about Jerry’s passing, I simply make the payments every month and they leave me alone. I could and will put the house on the market, but I owe approximately $170,000.00 on the house and cannot hope to cover that in this market, but I will try. With winter fast approaching in northeast Ohio, it is not the optimal time to list your house. Not only do I need to sell the house because I cannot afford it, but it’s a large, 5-bedroom, 4 bathroom house and I’m the only occupant. The energy bills alone are monumental. Also, my commute is approximately one hour each way to work. I need to live closer to my work and in a smaller house.

Here’s my question and it’s twofold. I would like to stay in the house over the winter because now is not the time to list it. I would like to put the house on the market in the spring when everything looks better. If, after a reasonable period of time, I cannot sell the house, I would like to call the bank and tell them they can have it. How badly will this hurt my credit? I never worried about it before because everything was in his name but now that I’m on my own, my credit score is (obviously) more important to me. Secondly, if I do manage to sell the house, it will be, I’m sure, at a shortfall. Will I be responsible for any leftover debt? I feel like I’ve been merely existing these last 8 months but I’m ready to at least start looking ahead so any information you can provide me would be sincerely appreciated. While I do not want to “beat” anybody out of money, I’m not so naive as to believe that a lending company will care overly much about my future. If, after reading this, you have other ideas that I haven’t thought about, by all means, please tell me. Any advice you can give me is appreciated. Thank you.
- Jo

Essentially, you’re asking what kind of impact walking away from your home and your mortgage will have on your credit. It will have a very serious negative impact on your credit, as the mortgage will be marked as being in default.

What does that mean? Negative items on your credit report have the greatest impact right when they appear, and that impact slowly shrinks over time, eventually disappearing after seven years (for most things). In your case, your credit will be completely shot for a year or two and will slowly begin to recover after that.

My suggestion is that you have a conversation with your lender before considering this move. Obviously, they are not going to want you to walk away from this, either – they don’t really want the deed to your home. Many banks are working with the people who own these homes to come up with better lending arrangements for both parties.

Q8: Finding a credit union
I’m looking to refinance my condo. Unfortunately, I own two companies and my W2 situation is a mess because one was started less than 2 years ago. That means despite having a 800+ credit score and over $100k in savings, my local banks computers just bounces back my application. I was told to try a credit union that doesn’t do automatic processing and I would probably have better luck. My question is how do I pick / research a credit union? There’s a lot in my state ( Illinois ) and city ( Chicago ). While there are a few reviews on yelp, they are few and far between.

Is there any place that rates / reviews credit unions?
- Griffin

There is no central clearinghouse for credit union reviews that I’m aware of. As you mentioned, yelp has some reviews, as do other services like Angie’s List.

My suggestion is that you simply ask around your social network. Ask your business associates what credit unions they use and recommend. What shops do good work and which ones have a bad reputation?

I tend not to trust online review aggregations from anonymous people because so often there are employees and owners putting up bogus positive reviews and competitors putting up bogus negative reviews.

Q9: Leaving an underwater condo
My wife and I each have identical condos, same lay out, same neighborhood. She bought hers for $200K, and I bought mine for $250K each with a 5/1 ARM loan. Her ARM came to term last year and is paying 3 points on top of the LIBOR index (luckily the LIBOR is very very low for now). My ARM comes to term next August with the same terms, 3 points on top of the LIBOR index. Refinancing is tough right now because we are underwater on both condos. But we are making our payments on time with no problems and don’t neccesarily have hardship. We don’t fall for any government funded help through Freddie Mac or Fannie Mae, so it seems we are out of luck there. We are currently renting her condo and living on mine. Our ultimate goal is to buy a single family, or townhome. My question is how should we go about this? Short sale both condos? Pay off her condo as much as possible to build equity, then sell it, or just continue to rent it and try to pay off the smaller loan then refinance? Short sale my condo, and live in hers? or Vice Versa? Try to talk with our lenders to get a better rate? The condos are small and not practical for two people but we are adjusting? Or do we just have to wait it out a couple of years? How many paths are there to this problem?
- Henry

If you have a good payment history, the first thing I suggest that you do is talk to your lender. Discuss the options with them and let them know that a short sale is something that you are considering. See what kind of packages they can come up with for you.

You can also take the same story to other banks who may be interested in picking you up as a customer, though they won’t have as much incentive as your current lenders.

I think most of this comes down to how underwater you are on these loans and whether or not your bank actually will refinance them in some sensible way. I can’t predict that – you’ll have to find out for yourself.

Q10: Tax breaks for window coverings?
I have looked high and low, both online and in stores, for information on the tax credit for energy efficient window coverings. I keep coming up with the same thing – “consult your tax professional to verify you qualify for the savings.” Well, guess what. I am the tax professional in this family – I do our taxes on TurboTax every year (splitting the cost of the software with family members.) Anyway, what information can the tax professional can read and understand that I can’t? Do you know the details of this credit? Thanks in advance for considering this question.
- Janelle

What’s actually happening here is that window covering manufacturers and salesmen are using some ambiguities in the tax code to promote something that isn’t really there.

Yes, there are a lot of tax breaks for energy efficient home improvements right now, as you can see here. The catch is that such tax breaks only apply for items that are “specifically and primarily designed to reduce heat loss or gain,” according to the IRS.

The problem is that the burden is on the homeowner to prove this, not on the manufacturer. The manufacturer can claim all they want that there are tax credits available for window coverings, but they only apply if the window coverings are highly efficient and are made primarily to reduce heat, like a rectangle that blocks all light and heat coming through the window.

Get window coverings that look good and are maybe a little efficient. Don’t waste your time trying to chase tax benefits through a vaguely written law unless you want to spend time proving to the IRS that your new window coverings actually provide a .30 solar heat gain coefficient in your home. If you want to save tax dollars with your windows, improve the windows themselves.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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