Get smart with your money
If you think the answer is simple, you may not understand the question.
That’s often true in life, but particularly so when we’re talking about debt. Simplistic, one-size-fits-all answers actually suit relatively few real people.
At one extreme are those who curse debt as a four-letter word and vow to avoid it entirely. At the other are those who revel in the notion of using “other people’s money” as much as possible.
In my latest for NerdWallet, how to use debt, rather than be used by it.
Today’s top story: Why personal loans with no credit checks are a very bad idea. Also in the news: What business expenses are tax-deductible, free apps to track your spending, and when it makes sense to hire a tax preparer.
Personal Loans With No Credit Check: A Very Bad Idea
If it seems too good to be true, it is.
What Business Expenses Are Tax-Deductible?
What small business owners need to know.
12 Free Apps To Track Your Spending And How To Pick The Best One For You
Tracking at your fingertips.
12 Times When It Makes Sense to Hire a Tax Preparer
When it’s time to call in the big guns.
Today’s top story: What you need to look for in a tax professional. Also in the news: Banks made $11 billion dollars in overdraft fees in 2015, strategies for starting out with student debt, and how to balance saving for college and retirement.
What to Look for in a Tax Professional
Finding the right person to trust.
Banks Made $11 Billion From Overdraft Fees Last Year
How much of it was yours?
Strategies For When You’re Starting Out Saddled With Student Debt
Starting off on the right foot.
Balancing Act: Strategically Saving For College And Retirement
Finding a way to do both.
Today’s top story: How to build an emergency fund. Also in the news: Social Security mistakes to avoid, the best way to save for a down payment on a home, and what happens when your 401(k) gets too big?
How to Build an Emergency Fund
Creating a financial buffer.
Don’t Make These 3 Social Security Mistakes
Social Security isn’t one size fits all.
The best way to save for a down payment
Where you should keep your money before making a purchase.
Can your 401(k) account be too big?
How to avoid penalties and extra taxes.
Best Leap Day Sales and Deals of 2016
It only happens once every four years!
Dear Liz: In 2012, I financed a 2008 Honda at my credit union. The car was priced at $16,500. With a trade-in, the loan came to $22,000. GAP coverage was factored into the loan payments, which were $464 a month. Last year, the car was wrecked and deemed a total loss by the insurance company. They paid the “book value” of $8,860 to the credit union. However, $6,000 remained on the loan. The GAP coverage paid $3,000 and now the credit union is saying I owe the remaining $3,000. They said the GAP would only pay a percentage of the balance because the car was “over financed” back in 2012. This seems to be unfair, and I feel like the lender should get the money from the GAP provider (per the contract that was signed when the car was financed). Is it possible for the GAP provider to refuse to cover the whole balance left on the loan? I will be meeting with the loan officer next week to discuss payment options.
Answer: You’ve discovered one of the many reasons why you don’t want to roll debt from a previous vehicle into a car loan to purchase its replacement.
Many people do exactly that, though. When trading in a car for a new vehicle, nearly 1 in 3 people roll debt from the old loan into the new one, figures from car comparison site Edmunds.com show. The average amount of negative equity in January was $4,814.50. With used cars, 1 in 4 people with a trade-in roll debt from their old car into the replacement loan, with an average negative equity of $3,595.30.
GAP (Guaranteed Auto Protection) coverage would seem to be the solution, since it’s designed to pay the lender the difference between the loan on the car and what the car is worth. Most GAP policies, though, won’t cover the debt you brought over from the previous vehicle. That leaves you in exactly the position you thought you would avoid, which is having no car but a pile of debt to pay off.
A better approach to car buying is to make a significant down payment, such as 20% of the purchase price, and keep loan terms to no more than four years. You can’t buy as much car that way, but you won’t end up owing far more than the car is worth.
Dear Liz: My cousin borrowed some money from us because he said they were behind on their house payments. It was only a small amount, but we said we wanted to sit down with him and his wife to discuss this. He agreed to meet with us in the evening of the day he received our check, but of course he called and said they couldn’t make it. We see them every week at church, and she doesn’t act as if anything was happened, while he avoids eye contact. It’s been three months and they haven’t made a single payment. I can’t imagine how I would feel if I found out that my husband was hiding something like this from me, and I don’t know if we should press the issue or just consider it a personal loss and lesson for the future. Any suggestions?
Answer: Loans to family and friends often become inadvertent gifts, so you were smart not to hand out more than you could afford to lose.
You already know everything you need to know about your cousin, which is that he lacks integrity as well as financial management skills. It’s possible that either or both of these facts would be news to his wife, but chances are good that she already knows. So there doesn’t seem to be much point in embarrassing her if you’ve already decided not to pursue the debt.