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Got money? Save some of it for college

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“If you can save for college, you probably should.”

That’s the mantra I’ve chanted in columns, speeches and interviews over the years. An article in today’s Wall Street Journal shows a lot of upper middle income parents aren’t listening, gauging by the amount of student loan debt they’re taking on. What the Journal found:

  • Among households with annual incomes of $94,535 to $205,335 (80th to 95th percentile of all households), 25.6% had student-loan debt in 2010, compared to  19.5% in 2007. Among all households, 19.1% had education debt in 2010 compared to 15.2% three years earlier.
  • The amount borrowed by upper middle income households rose to $32,869 from $26,639, after adjusting for inflation.
  • Fat student loan bills are no longer an anomaly. More than three million households have a student loan balance of $50,000 or more. That compares to about 794,000 in 2001 and less than than 300,000 in 1989, after adjusting for inflation.

The Journal threw in another statistic: More than one in three households with incomes of $95,000 to $125,000 who had a child entering college in 2011 didn’t save or invest for that child’s education, according to a survey by Human Capital Research.

Here’s the deal: A child’s financial aid package will be based in large part on what the parents earn. If they have a six-figure income, or close to it, the kid won’t get much help. Colleges expect that if you have that much income, you should have been saving some of it for education–whether or not you actually did.

Even families with lesser means could find they’re getting a lot less help than they expected, with much of it coming in the form of loans rather than grants.

Either way, that means the parents, the kid or both could be taking on a lot of debt.

The Journal suggested that this burgeoning debt may lead more families to more carefully consider cost and value when considering colleges, something that “could make it difficult for all but the most selective schools to keep pushing through large tuition increases.”

We’ll see about that. In the meantime, if you’re lucky enough to have a decent income, consider putting at least some of it aside for your kids’ educations. Do it even if you won’t be able to pay for everything, or you want your kid to be mostly responsible for the cost. Every dollar you save is a dollar your child–or you–won’t have to borrow later.

 

Are you paying too much for car insurance?

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Shopping for auto insurance is still a pain in the butt.

I’d hoped it would be better by now. I’d hoped that the Internet would make the whole process more transparent. But you still have to check several Web sites and pick up the phone to call a few agents to get a truly comprehensive picture of what various insurers are charging. Some of the big companies don’t participate with online comparison services (which is why you have to visit their sites and, often, talk to an agent to get a quote).

Why would you go through the hassle? Because the differences in premiums can be huge–not just hundreds of dollars a year, but thousands.

That’s because insurers are all different. They have different policies and ideas about what poses a risk and how much of that risk they want to take. If they don’t want teen drivers, for example, they will make it extremely painfully expensive to add one. Other insurers will just make it painfully expensive.

Insurers also adjust their pricing to add or shed customers. If they want to get bigger in a certain market, they’ll chop their prices to attract more drivers. If they decide they’ve gone overboard, they will jack their premiums above their competitors to slow new applications. If you’re a long-time customer who doesn’t know any better, you could find yourself paying a lot more for the same basic coverage than you’d pay with one of those competitors.

If you want some incentive to start getting quotes, check out CarInsurance.com’s Rate Comparison Chart and then read Des Toups’ accompanying post, “The most and least expensive cities for car insurance.” The average premiums cited conceal a lot of variation, Des noted.

For example, the average rate from six major insurance carriers for ZIP code 48101 in Dearborn, Mich., was $2,522 — but that included rates as low as $1,776 and as high as $4,374.

Des ran the numbers for a ZIP Code closer to me–90025, or West Los Angeles. There the average was $1,915, but the range was from $1,106 to $3,136.

Price isn’t the only thing to consider, of course. How fast and how well the company handles claims matters a lot, too. Your state insurance commissioner may have complaint data that will help you figure out which companies to avoid, like this one at California’s Department of Insurance. The number to pay attention to is the “justified complaint ratio” which divides legitimate complaints by the number of policies the insurer has in the state. Just as there are big difference in price, there are also big differences in complaints.

In any case, you shouldn’t assume you’re getting the best deal. Every year or two, check around to make sure.

When you should consider bankruptcy

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The conventional wisdom—that people who file for bankruptcy are deadbeats who choose not to pay their debts—is typically dead wrong.

Ask any bankruptcy judge or trustee. Most people who file for bankruptcy don’t do it as a first resort. Most people, in fact, put off filing for far too long. They struggle for years with impossible debts, often draining retirement funds or home equity in vain attempts to satisfy their creditors. The tragedy is that the money they’re pulling from their IRAs or their homes would be protected from those same creditors if they had filed for bankruptcy sooner. But they try to do the right thing, and as a result wind up far worse off than they might have been.

Add up all your unsecured debts. Unsecured debts include:

  • Credit card debt
  • Medical bills
  • Unsecured personal loans
  • Loans from friends and family

Unsecured debt does not include auto loans, mortgages or student loans.

If your unsecured debts equal half or more of your current income, then you should make two appointments:

  1. Visit the National Foundation for Credit Counseling and set up an appointment with a legitimate credit counselor. These folks can tell you if you may qualify for a debt management plan that would allow you to pay off your credit card debt within three to five years. Credit counselors try to help you avoid bankruptcy, so to get a complete picture of your options you should also:
  2. Visit the National Association of Consumer Bankruptcy Attorneys and get a referral to a nearby experienced bankruptcy attorney. The attorney can review your situation and let you know your options in bankruptcy court. Many of these attorneys offer free or discounted initial sessions.

Even if you’re determined to avoid bankruptcy, you should consult with a bankruptcy attorney about your situation if you’re being sued over your debts or your wages have been garnished to pay your debts. Once the courts are involved, you need a lawyer’s help.

How to bounce back from bad credit

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Foreclosure, bankruptcy or a history of missing payments can send your credit scores into the basement. The good news: nothing is permanent in the world of credit and credit scoring. You can rehabilitate your scores over time if you know how.

Here’s what to do:

Pull your credit reports from all three bureaus. Check for errors and dispute any serious mistakes, such as accounts that aren’t yours or late payments being reported when you paid on time.

If you don’t have any credit cards, apply for a secured card. These cards give you a credit line that’s equal to the amount of cash you deposit with the issuing bank. NerdWallet recommends the Capital One Secured Card and the Orchard Bank Secured Card.

Use your cards lightly but regularly. Your charges shouldn’t total more than about 30% of your credit limit—10% or less would be even better. And you shouldn’t charge more than you can afford to pay off in full every month. Carrying balances doesn’t help your credit scores, and it’s expensive. So don’t do it.

Apply for an installment loan. Your credit scores will recover faster if you have a mix of credit, which means both revolving accounts (credit cards) and installment accounts (mortgages, auto loans, student loans). If you don’t already have an installment loan, consider applying for a personal loan from your local credit union. These member-owned financial institutions often have been rates and more flexible credit standards than traditional banks. Don’t belong to a credit union? You can find one you’re eligible to join here.

Pay your bills on time, all of the time. One skipped payment can devastate your scores. So can an account that’s charged off, or that’s turned over to collections.

You can track your progress by using a credit monitoring service that includes your credit score. Some sites, like Credit Karma, offer credit monitoring for free, although the credit score you get isn’t the FICO score most lenders use. To get your FICO, you’ll need to sign up with MyFico.com.

The best used cars, from Edmunds.com

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If you’re in the market to replace a vehicle, check out Edmunds.com’s list of 2012 Used Car Best Bets, which include:

Compact Sedan: 2005-2010 Hyundai Elantra
Midsize Sedan: 2005-2010 Nissan Altima

Large Sedan: 2006-2010 Hyundai Azera
Coupe: 2005-2010 BMW 3 Series
Convertible: 2005-2010 Mazda Miata
Wagon: 2005-2010 Pontiac Vibe
Compact SUV/Crossover: 2005-2010 Honda CR-V
Midsize SUV/Crossover: 2005-2010 Ford Explorer
Large SUV/Crossover: 2005-2010 Chevrolet Tahoe
Minivan/Van: 2005-2010 Honda Odyssey
Compact Truck: 2005-2010 Toyota Tacoma
Large Truck: 2005-2010 Ford F-150
Luxury: 2005-2010 Infiniti G35/G37
Hybrid: 2005-2010 Toyota Prius

Sport Compact: 2005-2010 Subaru Impreza WRX

Edmunds.com editors picked the cars based on reliability, safety, value and availability. The editors considered cars that were two to seven years old, which is pretty much the sweet spot for used car purchases.

Since all cars are used cars as soon as you drive them off the lot, you might as well let someone else take the depreciation hit. You can tens of thousands of dollars over your driving lifetime by buying slightly used cars. Save even more by paying cash and keeping them for 10 years or so.

For more details on Edmunds.com’s list, visit http://www.edmunds.com/car-reviews/best-used-cars.html.

How to get free summer travel

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My daughter hasn’t seen her cousins in the Northwest for awhile, so I just finished booking us a late-summer trip to see them. The net cost so far? Less than $30.

Here’s how I did it:

Amtrak roomette. We both love train travel, and the points I earn using my Starwood American Express card transfer directly to my Amtrak Guest Rewards program. Fifteen thousand points buys us a roomette, or double-bunk room, and all our meals for the 30-hour trip. Paying cash would have cost $411. (NerdWallet has a review of the Starwood card here.) I did have to buy a few extra points from Amtrak to make the purchase, since I recently depleted our Starwood points to book a hotel room for five nights in Hawaii. The good news is that Amtrak is offering a 30% bonus when you buy points, so I got 1,300 points for $27.50.

Hotel rooms. I’m a Hilton HHonors member, so I checked online for affordable hotels in Portland. Fortunately, the Hilton chain includes options from inexpensive (Hampton Inn, a great value) to astronomical (Waldorf-Astoria). I could have used 30,000 points to get us a free room, but that wouldn’t have been a great exchange rate, since rooms with two queen beds were available for less than $100 a night at the Doubletree. Here’s the beauty part: I’ll get 15 points per dollar spent for this stay, but it won’t actually cost me anything. That’s because the room is charged to our Capital One Venture card, which reimburses us for travel. We earn two points for every dollar we spend with the card, and we can use those points to offset the cost of travel. We book any flight, hotel or rental car we want, click on a button at the Capital One website to request a travel credit, and the rebate quickly appears on our account. Easy peasy. (CreditCardForum.com has a review of the Capital One Venture cards here.)

Flight home. We didn’t have a lot of flexibility on our return date, and I wanted to fly Alaska Airlines, where I’m (usually) an elite flier. I had enough Alaska miles to do a miles-and-cash deal—20,000 miles and $190 got us our flights home. And once again, Capital One will reimburse us for the cost of the flight.

I’ll still be shelling out for meals and museum admissions; Dear Daughter will pay for her own souvenirs and treats from her allowance and savings. All in all though, it promises to be a pretty cheap getaway.

Travel rewards programs don’t make sense for everyone. If you don’t pay off your credit card balances in full every month, for example, you should look for cards with low interest rates and skip the rewards versions, which tend to have higher rates. But if you spend a fair amount and travel a fair amount, as we do, you can wrest quite a bit of value out of your rewards programs.