Wednesday, June 30, 2010
I was recently on ABC News, Good Money Show, talking about whether you should buy a hybrid, that extended warranty or a programmable thermostat--are they really worth it?
Consumers in a post recession economy are constantly looking for ways to save money. In some cases, there’s an upfront investment required in order to save more in the long run. Should you ante up now on the promise that the investment will pay off later? Today, I'm going to answer your questions about when to invest now in order to save later and when you should pass or just say “no.”
Q. When consumers consider purchasing a product that carries a good faith promise of “invest a little money now and save big money down the road” how can you tell which investments are worth the cash and which are scams?
ELLIE: Whenever there is a post recession economy, there is also going to be a proliferation of those unscrupulous individuals who will try to take advantage of a consumer who is out to save money and cut expenses. There is a difference between fraud, which is illegal and punishable by law and the empty promise, which a salesman might make to close the deal. Before you sign the dotted line with a solar panel sales company, check them out on the Better Business Bureau site. But just because there are no complaints doesn’t mean it’s a legitimate business. Ask for references, don’t give into pressure sales, never respond to an email inquiry, and guard your personal information.
Q. Let’s go down the list of common purchases that promise to save us money in the long run if we invest a little money now. Let’s start with a simple programmable thermostat that costs around $50. Is it worth it?
ELLIE: The average family spends $2700 a year on home energy and nearly half of that goes to heat or cool their home. A programmable thermostat is easy to install and should save you around $180 a year, so you’ll recover that investment in about four months. This is a “must have” purchase for every home.
Q. What about a hybrid car? The promise is that we will save enough on gas to recoup the extra cost of purchasing the car. How much more do these cars costs and do you think that it’s worth the additional expense?
ELLIE: If you buy a hybrid, you’ll pay 20 to 30% more than a nonhybrid counterpart. The answer to this question is Yes and No. Yes, if you buy a less expensive hybrid like a Toyota Prius (which starts at $22,000) and if you put 20K+ miles on your car every year. You’d also need to do mostly city driving for this to be worth it. No, it wouldn’t be worth it if you buy a more expensive hybrid, don’t put as many miles on it or if gas prices are under $4 a gallon.
Q. I use my laptop computer a lot and I’ve always bought an extended warranty on it because I want to make sure I can save on repairs. I spent about $100 for my laptop warranty for a two year extended warranty. Did I do the right thing?
ELLIE: If you have an expensive laptop ($1000 or more), then you did the right thing because laptops cost more to service than desktop computers. But if you bought a $400 desktop, chances are you can fix a lot of those problems yourself—they are very user friendly. So in the case of an inexpensive desktop, it would probably be best to just pass on buying an extended warranty.
Q. This past week the Mortgage Bankers Association released mixed mortgage rates. An average 30 year mortgage increased to 4.82% and the average 15 year mortgage rate was 4.23%. A big question on homeowner’s minds is: should I pursue a mortgage refinance? Ellie, when the average refi costs anywhere from 2% to 3% of the total loan, when is it a good idea to refinance?
ELLIE: There’s a good rule of thumb when it comes to refinancing your home. If you can get at least a full one percent break from the interest rate you’re now paying and if you do not plan to move for the next 3 to 5 years, then there probably won’t be a better time to refinance. Just make sure that you crunch the numbers, using my mortgage refi tool at elliekay.com and be sure you shop around with different lenders such as INGDirect.com, wellsfargo.com, and bankrate.com. Get a GFE (Good faith estimate) up front and don’t let them add the closing costs to the back end of your loan because you would be paying interest on your closing costs and that negates a good portion of the value of the refi.
Q. Summer is here and I’ve always heard that planting your own garden can not only yield great tasting fresh produce, but you can also save a lot of money. There’s also CSA (community sponsored agriculture) programs that allow members to purchase shares and get weekly produce from specific farms. Are these a good idea?
ELLIE: You’re going to pay around $70 to plant your own garden and it will cost around $450 to purchase a 12 to 15 week CSA share So the answer is “yes” this will save you money if you want to invest 5 hours a week on your own garden. If you go the CSA route, the breakeven point is spending more than $33 a week on produce. One other option is to split your efforts with a friend or neighbor. You can share a local garden or you can each go in on a CSA share (paying $225 each instead of the $450 for the full share). Plus, you’ll get some healthy and super fresh results!
Q. We’re hearing a lot about energy star appliances such as refrigerators and washing machines. They promise to save us 40% on energy and water bills but sometimes cost 70% more than non-Energy Star certified. Is it worth it to replace your existing appliance?
ELLIE: If you have to replace that appliance anyway and you shop around, then yes it can be a great example of spend now and save later. Let’s take the example of a washing machine. You have an older top loading model that costs around $44/ year in energy. An Energy Star rated front loader (such as the Frigidaire Affinity, 3.5 cubic foot model) costs only $18 per year in energy (gas or electricity). But, it also saves 40% on water, you use less detergent, the clothes come out less damp, which means less time in the dryer. All these additional savings, including the savings of around 7,000 gallons for an average sized family means that this is a good purchase. Plus, if you go to www.energysavers.gov , you’ll find a list of appliance rebates and tax credits that are available for Energy Star rated appliances in your state!
Q. What about credit card balance transfers. There are still a lot of offers out there that promise to save consumers money with a lower interest rate. It can cost up to 5% of your credit card balance. Every financial expert has an opinion on this. What’s yours?
ELLIE: I’m not a big fan of credit card balance transfers and it’s not just because of the transfer fee. I’ve seen too many “hoppers” who transfer balances frequently, chasing the lower interest rates when the existing introductory rate expires. I have an online calculator at elliekay.com that can help you determine how much money you would save in a balance transfer. A lot of these offers are for consumers that open a new card and when you’re opening multiple new cards and closing others down, just to chase a lower interest rate, you risk deteriorating your FICO, or credit score. So unless you’re going from an 18+% rate down to a fixed 5% rate (plus the transfer fee) and chances are not good you’re going to find that kind of good deal---then just pass.
America's Family Financial Expert (R)
Thursday, June 24, 2010
One of Yahoo's most popular videos was yours truly on ABC NEWS NOW earlier this month answering your questions about college grads as well as debt!
Here's the scoop:
Q. Our daughter just graduated from UCLA and we’re very proud of her. But even though she has a prestigious degree, she still hasn’t been able to locate work. Should we allow her to move in with us until she finds employment?
Bill and Carol from Quartz Hills, CA via facebook
Ellie: This is a tough one! As a mom of kids in this age group, I know it’s a fine line between enabling and empowering and it’s definitely one of those individual decisions. What may be right for a particular child may not be right for another one. I think you ought to support her emotionally and psychologically, letting her know you believe in her. You can also offer to help with resumes or job research. But I would make the offer to have her move in with you as a last resort only. Furthermore, if she does move in with you, it’s important to sit down ahead of time, come up with a responsibility/income agreement and have both parties subscribe to the guidelines.
Q. My husband and I have a son who graduated last year and could not find work, so he moved in with us until he could find employment. He found a modest job, and is not making very much money. He decided that continuing to live with us would be a better financial option than paying rent on a limited income. I love my son, and he’s only 23 right now, but I’m afraid of a “Failure to Launch” syndrome and I need to know what you would advise me to do.
Allana from Lancaster, PA via online contact form
ELLIE: OK, the Failure to Launch syndrome, it’s every parent’s nightmare. We finally have an empty nest, then boomerang children come back to inhabit a place where they no longer naturally fit. I think, Allana, that it is imperative that you and your husband develop an comprehensive exit strategy for junior. Make sure this plan requires that he pays room and board with you, that he develop a clear budget and make himself accountable to you (while he’s living at home) and then be clear about D-day. The day he will depart. Be loving but firm. Remember that the decisions you are implementing with him today will be the precedence you set for tomorrow. You and you alone, enable the boomerang effect, yet you also have the power to put a stop to that boomerang before it’s ever launched. Then you won’t have a “Failure to Launch.”
Q: I am a 26 year old single girl with a bachelor's degree but not yet a Master's. I am working with children in a library setting currently and am considering various Master's programs. (Library Science included). I would have to take out loans for the program though, and I am not sure that taking on that debt would be a wise thing, even though it would lead to a professional job. What is your advice for women around my age who eventually want to marry and have a family and do not want the burden of school debt? I have read some of your books and very much appreciate your insights and time.
Jen Crouse submitted via Online Contact Form
Ellie: It's admirable that you desire to go back to college for a master's while you are still in your twenties and your work with children sounds very gratifying. Ellie usually recommends no more than 10K in student loan debt for any program (bachelors or masters). Instead, you could look into some of the following:
Apply for a scholarship. There are merit based graduate school scholarships out there so go to www.salliemae.com which lists almost 2 million scholarships. Talk to the admissions office at the college or university at which you'd like to apply. They can give you advice on applying for their own scholarships (if they have them) or point you to the appropriate federal and/or state scholarship programs.
Look into a fellowship or assistantship. Many colleges and universities offer programs that enable you to get a master's degree while doing research or assisting professors in the department in which you wish to study. This is a viable option that also enhances your hands-on experience in your chosen field.
Talk to your employer. Many employers are willing to foot the bill for a master's degree, especially an MBA (Master of Business Administration). Talk to someone in your company's Human Resources department to get more information. Or another option is to talk to a military recruiter to join the guard or reserves. The Army, Air Force and Navy will pay up to $65,000 in student loan debts if you qualify for the program.
Q. My husband and I want to help with our son’s college expenses (he graduates in two years) and we don’t want him to be straddled with huge student loans. Several of our friends and other family members have said, “Just take out a second mortgage or use the equity in your home to pay for college.” What do you think about that?
McKenzie Thomas from Stanford, CA
Ellie: I believe that you should never borrow on your own future to pay for your child’s future. In any discussion of college costs, it’s important to keep priorities straight. Your kid’s education shouldn’t cost you your retirement. This means it’s not a wise idea to take out a home equity loan, an equity line of credit or refinance your mortgage in order to pay for school. This would reduce the amount of equity in your home, increase the risk of possible foreclosure and incur costs in interest charges that may cost more if the term on the new mortgage is greater than the remaining term on the existing mortgage.
Q. My son-in-law just graduated with his Masters Degree in Education. They have had a hard time while he’s been in school and don’t have the best credit scores. They’ve asked us to co-sign on a new automobile loan and we are reluctant. What do you think about co-signing for loans?
Amanda from Wichita, KS via Ellie Kay’s blog
Ellie: Since you son-in-law needs a co-signer, it means their credit is so risky that no lender will give him money on his own credit history. The question is: why should you? Even though it may come across as “helping a family member out” it’s still a business transaction and when you set the precedence of co-signing on a loan—be prepared to do it again and again. If not for the same person, then for another friend who may say, “well, you did it for Daniel, why not me?” You have to assume you will be the one repaying the loan & you won’t have the associated asset, so it can’t possibly be a good business move.
America's Family Financial Expert (R)
Wednesday, June 16, 2010
Son, Daniel graduates from college in this happy snap and it's that time of year when proud parents of the class of 2010 gather to watch their children graduate from college. I was recently talking about this topic on ABC NEWS, Good Money where you can watch the clip.
After the hats are tossed, tears are wiped away and the celebratory cake is gone—the graduates will begin their new lives in the real world. But this year’s graduating class faces a wretched job market where there may be as many as five candidates for every job. Consequently, one of the most daunting tasks becomes the challenge of not falling behind on student loans. While challenging times can build moral fiber, you don’t want to build character by getting involved in the debt trap.
Q. First of all, what are some of the consequences that graduates face by getting behind on student loans?
Ellie: As a mom of kids in college as well as a recent graduate, I know personally, how difficult the job market is and what a challenge these graduates face. First of all there will be interest charged for late payments as well as fees that will inflate the amount they owe---and chances are good that they owe too much as it is! If you default, the government could garnish your wages and withhold your tax refund. Not to mention a huge hit on your FICO score, when you’re just starting out and trying to build a good score that will help get lower interest rates on a car or a house. This isn’t a good way to start your post-graduate life!
Q. But you say there is good news and that these dire consequences are avoidable, as least as far as federal student loans are concerned. The key is to understand your options and take action before you fall behind on payments. The first tip you list is to understand your grace period, when do students have to start paying back these loans and how do grace periods vary?
ELLIE: Borrowers typically have a few months after graduation before they are required to start repaying their federal student loans. For most federal student loans, the grace period is only six months. Most loans have up to ten years to repay. It’s important that you contact your loan provider and find out when the statements begin—especially if you haven’t received notification yet.
Q. What if the graduate has trouble finding work or they find an entry level job that typically doesn’t offer much in the way of compensation? Is there recourse for the amount they are required to pay for their loans?
ELLIE: That’s an excellent point and it brings us to our second tip, they need to find out whether they qualify for the income-based repayment program. Under this program, your loan payment could be reduced, based on the amount of discretionary income you have available. In most cases your loan payments won’t exceed 10% of your total income. After 25 years, anything you still owe on the loan will be forgiven.
Q. Is this income based repayment program an automatic enrollment or does the graduate need to apply for it?
ELLIE: You definitely need to apply for it by contacting the company that is servicing your student loan. If you’ve moved a time or two and your loan papers have not been forwarded to you and you are not sure who services your student loan, then you can go to the database of the National Student Loan Data System.
Q. Is there some paperwork you need to compile before you apply for the income based repayment program?
ELLIE: Yes, it’s important to have this paperwork on hand in order to streamline the process because you do want to get this filed as soon as possible—especially if you’re in danger of being late on loans and you have a genuine financial hardship due to your current income levels. You’ll need to authorize the IRS to provide last year’s tax return to the Department of Education. If you feel that your tax return doesn’t reflect your current situation, there’s a form you can use to show how your situation has changed. Get info on these forms and criteria, as well as links to major student loan servicers at the Project on Student Debt.
Q. We’ve looked at income based repayment, but what about those who need a quick, temporary fix? Maybe they have to take an unpaid internment at first or they may have a job that will become available in six months. Are there options such as deferment or forbearance available to this class of graduates?
ELLIE: If you are unemployed, still in school or experiencing economic hardship, you can apply to have payments on your federal student loans deferred for up to three years. If you have subsidized Stafford loans, which are provided to students who demonstrate financial need, the government will pay the interest on the loans during deferment. Interest on unsubsidized Stafford loans will accrue during deferment. If you don’t qualify for deferment, then you still might be eligible for forbearance, which allows you to put off payments for up to three years. It’s harder to qualify for deferment than it is for forbearance because in forbearance you will still have to pay interest that accrues.
Q. Does it take a long time for the paperwork to go through for these kinds of programs we’ve discussed: income based repayment, deferment and forbearance? Couldn’t a graduate find themselves in default by the time the paperwork is processed?
ELLIE: It’s important that you continue to make full payments until you’re notified otherwise. It takes longer for income based repayments and doesn’t take as long for deferment and forbearance because the latter two are temporary relief from loan payments. Whereas income based repayments could be longer term, depending upon how long you are in that job, making that salary. It’s important to look at forbearance and deferment as short term fixes and not long term—that’s why it’s really important to file for these right away, while you’re looking for a job. But if it looks like your payment problems will last longer than a few months, you definitely need to look at income-based repayment.
Q. Some graduates have huge student loans, in some cases, they have more than $30,000 in principal and interest. It is especially difficult for these grads to face this mountain of student loan debt. Can they extend the payment term in order to get through the first few years?
ELLIE: If you are a borrower who owes more than 30K , most lenders will allow you to extend the term beyond the standard 10 years, thus reducing monthly payments. The amount of interest you pay will increase, though, particularly if you extend payment over the maximum term of 25 years. And who wants to spend the next 30 years paying off a student loan? So I would only recommend this option as a last resort. Try to pay it within the standard 10 year term so that you can avoid thousands of more dollars in interest.
Q. Finally, we’ve discussed federal student loans, but a lot of viewers may hold private student loans that they have to repay. What are their options?
ELLIE: Well, the outlook is not as sunny for those who have private loans. They have fewer options. Private education lenders don’t participate in the income-based repayment program and they’re not required to allow you to defer payments, even if you’re out of work. If you’re having trouble with your private loans, read your loan agreement. It may require that the lender grant you forbearance under certain conditions. Even if your contract doesn’t include an economic hardship provision, your lender may be willing to provide relief. Some lenders have become more flexible in this post-great recession environment. You could ask for interest only payments or even to change the terms of the loan. For more information, go to Student Loan Borrower Assistance
America's Family Financial Expert (R)
Thursday, June 10, 2010
There's nothing worse than anticipating a much needed getaway only to discover a lot of unexpected fees, add-ons and additional expenses once you get to your dream spot. With so many sites and so many choices, how do you know if you’re getting the best deal?
Today, I was on KLOVE, with the fun-loving Scott and Kelli to make some recommendations that will make the process easier and more rewarding.
STEP 1: Be the Expert - You may think you have a good idea of what a great price is for airfare to the Grand Canyon, but how can you be sure? By subscribing to a few travel alerts and newsletters, such as Travelzoo, SmarterTravel, Yapta are good as well as Bing.
STEP 2: Beware! -- You don't want to show up for your dream vacation and find out that the "Five Star" hotel you booked looks more like the Professor's hut on Gilligan's Island. For videos of hotels, restaurants, and attractions, go to Tripfilms and take a peek from videos posted by other travelers. You can also look at families' vacation photos of your destination at Flickr. Or read reviews by others posted at TripAdvisor.
STEP 3: Be Smart -- "A Wise man count the cost before he builds a tower" says Proverbs. When you're searching for the best air fare, go to BookingBuddy, which will save time and money because it will search almost all of the OTHER airfare research sites (such as Orbitz, Expedia, CheapTickets, etc) to give you the best price. Also, find out the real price of your airline experience by checking Airline Fees: The Ultimate Guide at SmarterTravel where you'll find the cost of carryons, checked luggage, blankets, pillows or if you have to cough up $100 more for that extra leg room!
STEP 4: Be Open -- It's really a buyer's market in some areas this year, especially if you are open to more than one vacation idea. For example, this year, according to the 40% to 60% off deals at Travel-ticker to go on a seven day Mexican Carribbean Cruise than it is for us to go to Disneyland. So we'll feast on fajitas this year and leave the mouse ears for next year!
STEP 5: Be Social - Do you want to know if that restaurant you're considering is good or not? Then turn to your social media friends (and a smart phone) to find out! By using facebook and twitter, just ask your friends what they think. Or log onto Yelp to see what others are saying. By getting a free app with FlightAware you can track your flight within five minutes of real time.
Question of the Week from Georgina from Baker, FL - Ellie, I know you purchase $25 gift certificates when they go on sale at Restaurant.com for only $2, but is there a "catch" or any restrictions involved?
ELLIE: Georgina, I find out that these are on sale by subscribing to the Top Twenty and I LOVE them! The restrictions are listed and usually include the fact that they will add 18% automatically at the restaurant for a tip (before the gift certificate, so don't double tip) and you have to spend $35 to use the $25 gift certificate. Even so, we still save about 50% and it's worth it!
More Sites for Savings
Hotels.com – Find best prices on hotels internationally and earn bonus stays
Ifly.com – terminal maps, estimates on how long security lines are, where to eat.
Otalo.com – vacation house rental deals
Tripkick.com – detailed info on hotels and specific room info
TVtrip.com – photos of lobbies, rooms and neighborhoods
Oyster.com – pros and cons of different hotels
Voyij.com – checks best sales, promotions and package deals from departure city
Seatexpert.com – guide to the best and worst airline seats
Have a Great Escape!
America's Family Financial Expert
Sunday, June 6, 2010
I recently appeared on ABC NEW NOW and answered your questions on summer travel, budgeting, SHARE for groceries and more!
Q. A friend of mine is in a part of a food co-op called SHARE and she gets $45 worth of food for $20. How do these co-ops work and do you think that they can save you money on your grocery bill?
Angie from Temple, TX via facebook
Angie from Temple, TX via facebook
Ellie: S.H.A.R.E has been out there for quite a few years and our family even participated with this when we lived in New York. SHARE is an acronym for Self-Help and Resource Exchange – is a program where people get a break on their grocery bills by exchanging volunteer time for the opportunity to buy affordable food. For each package of food purchased, we simply ask for two (2) hours of “good deed” time, whether at SHARE, other institutions in your community, or your own neighborhood. Food packages (worth up to $45) offer meats, fresh fruits and vegetables and grocery items. The price you pay is based on what you select from the menu but you can generally save about 50%. SHARE purchases the food from growers, brokers and packaging plants and is never donated, government surplus, or salvage. Just google "SHARE" and your city to find the program in your area.
Q. We’re driving from Arizona to Louisiana for a family reunion. It’s just me and my wife, how do I tell if it’s going to be cheaper to drive or to fly this summer?
Al from Scottsdale, AZ via online contact form
ELLIE: That’s a good question, Al, because if you were going solo, it would definitely be cheaper to fly. But the way to figure the costs is to first do a mapquest to get the exact number of miles you would cover in a car. Figure your gas mileage and divide it by the total number of gallons by getting the price for gas at gaspricewatch.com. Multiply the number of gallons you’ll use by the average price per gallon and be sure to add the cost of a hotel in case you need an overnight stay. Then go to bing.com to look at the predicted costs of flights or go to bookingbuddy.com to see the average price of flights. You also need to factor in whether you’ll need rental car if you fly. Once you compare air fare versus driving, don’t forget to factor in the time off work it costs you to take the extra two days (or more) to drive.
Q: I read on your blog, Ellie, that you can purchase gift certificates at sites like restaurant.com. You said that when they run on sale, you can get a $25 restaurant certificate for $2. Are there any restrictions or stipulations we should keep in mind when purchasing these?
Steffy, Birmingham, AL submitted via facebook
Ellie: When you go to restaurant.com, you'll see that the restrictions vary from restaurant to restaurant. But all the stipulations are listed on the website before you. Most will not add in the alcohol to the minimum purchase and almost all will add an 18% gratuity based on the price BEFORE the certificate, just to make sure the server gets their full tip. So be careful not to double tip (adding yet another 15% to 20%) when you get the bill. You usually have to buy $35 in food to use the $25 gift certificate. You have up to twelve months to use the certificate. But if you do the math and if you spend the minimum $35, adding the 18% tip, then you’re paying $42 before the gift certificate and $17 afterward. Add in the $2 you paid for the certificate and you’ve paid around $19 for a $42 tab, which is a savings of over 50%.
Q. We are newlyweds and we’re trying to pay cash or debit for groceries, gas and entertainment, but still seem to go over budget. Do you have a secret for tracking how much we’re really spending? There are two of us and we don’t always know what the other is buying and before we know it, we’re over budget.
Joshua & Emmy from Fort Bragg
Ellie: My husband, Bob and I had this same problem when we were first married as well. It can get complicated when one partner is buying groceries and the other also stops in to get some essentials on the way home from work. Even though you may not be duplicating purchases (getting two gallons of milk instead of one), you may be overspending at the store, unaware of what your partner is spending. The easy solution is to get the cash you’ve budgeted for the week and put it in an envelope marked food, gas, entertainment. When you know you’re going to need gas on the way home from work, get money from the appropriate envelope. With both partners taking cash from the same source, you’ll soon see how quickly you’re getting to your stopping point and you’ll be able to more easily track your spending.
Q. We have three children ages 6 to 10 and when we go out to eat, they want to order the most expensive thing on the menu. Sometimes our eight year old has a more expensive meal than his father, and he never finishes it! How do we keep our kids on a budget so that we can afford to eat out more often?
Samantha Evans from San Diego
Ellie: I think that it’s important to get the kids in on the process of economizing and you can do it in a fun way. First, call a family meeting and discuss the fact that when you go out to eat (or to a movie, the zoo or a theme park) that you’re going to give each child a fun budget. You’ll pay for the outing, but they have an amount they need to stick to. If they come in under budget, they get to keep the extra money. That’s what makes it fun. When we did this with our kids, it was amazing how they suddenly wanted to order water instead of soda and eat ice cream at home instead of in the restaurant.
America's Family Financial Expert (R)