Bankruptcy, Car Buying, Debt, Emergency Fund, FICO
May 14, 2020
Listen to Podcast Episode:
In this podcast of Ask Suze Anything, Suze answers questions from Women & Money listeners Jodi, Elizabeth, Joel, Mark, JF Spin, Edith, En Gee, Ora, and Michelle.
May 14, 2020. Welcome to the Ask Suze Anything edition of the Women and Money podcast, as well as the men smart enough to listen. Every Thursday, I drop a show that answers the questions that I've chosen from the ones that you've written in and asked that I think might interest everybody. And if you want to ask a question, just go to the Women and Money app. You can download it on Apple Apps or Google Play, and that is where you ask your question, along with many other things. Also, do you know that we have a few hundred Suze Ambassadors who have already signed up to participate in referring the Must Have documents and earning money? We have some people that are already earning money, and I love that! Before I begin and I answer your questions, two things that I want to update you on, and they are as follows. Yes, yes, yes. The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime, my New York Times bestseller that was released on February 25, yes, you can still get it for $10, and that includes shipping. If you just go to www.SuzeOrman.com/WomenAndMoney, that is how you get that book for $10. The publisher sends it to you directly. Also, some of you are asking for clarification on how do you participate in the virtual town hall that I'm going to be giving with Hoda and Jenna on The Today Show. How do you possibly get to be on that? All right, listen to me closely again. All right, everybody? You just go to www.HodaAndJenna.com, scroll down and click on where it says connect. So click on connect and you ask your question right there. All right, everybody? And if chosen, then you will be part of our virtual town hall that we are going to have to answer all your questions. I would love to see your faces on air with me on The Today Show. Wouldn't that be fun? So do it now and do it now, everybody, before too many questions come in. All right? OK, so a few things that I want to touch on before I answer your questions, and they are as follows. The stock market. Yes, I know, it went down yesterday and it went down the day before. Seems to me I think I told you that I thought that was going to happen these days. Didn't I say that to you a week or so ago? However, with that said, let it just go down, let it just go down, don't worry about it. Just keep dollar-cost averaging in once a month, like many of you have been doing, and eventually you will be fine. Again, I keep telling you that I think in September, end of September, all of you are going to be feeling a lot better about everything. And then come February or March of next year, the market should be pretty rock-solid. So, if you just stay in and you keep doing this as long as you have at least five, 10, 15 years or longer until you need this money that you are investing or you have invested, you're going to be OK. Again, I will reiterate, and I asked you a week ago or so when the markets were coming up, they had rebounded here, that if you need your money within a year, did I not say, take it out? All right. You know, I still think the markets go lower, rebound a little, go lower, they're going to be all over the place. And for those of you in the XLEs, I do think in June, oil will start to make a little bit of a comeback. Will it go anywhere close to where it was when it was $150 and up there? No, but it will make a little come back. But I also said to you a little bit ago, when it was at about $38 or $39. Hey, it's up to you now, but you might want to think about taking profits here. It's back at about $35 right now, but this is something that you have to play very carefully. Again, it is in your hands. The next thing I want to talk to you about is student loan interest rates, and I have some interesting news for all of you. For those of you taking out student loans on July 1, 2020, through June 30, 2021, student loan interest rates have absolutely gone down. The Federal Stafford Undergraduate Loan now, the interest rate, the fixed interest rate, is going to be 2.75%. I just have to say something about that. That's the lowest that I can ever remember it being. I think the past low was in 2005 and I could be wrong here, but I don't think I am, in 2005 it was at 2.875%. So this is the lowest I have ever seen it. The Federal Stafford, the Graduate Loans, are at 4.3%. The Federal Parent Plus Loan is at 5.3% and the Federal Grad Plus Loan is at 5.3%. Those are a tremendous reduction from where they were a year ago, two years ago, and so forth. A lot of you may be interested in, how do they set these rates? And I'll just briefly tell you that they are based on the last 10-year Treasury note auction that's held in May. So, this year the last auction in May was held on May 12, 2020, and it had a high yield of, now listen to me closely, 0.7%. Do you know that a year ago when they did this, that the 10-year Treasury note auction was at 2.479% just one year ago? So do you see how the 10-year Treasury note interest rates have dropped dramatically in just one year, down almost 2% in one year? So that's how they are based. Now, please be aware that the new interest rate does not apply to old loans. So, if you have a loan that you already took out, that doesn't mean that your interest rate is going to go down. This is for new federal direct loans that are going to be taken out, again, starting July 1, 2020, through June 30, 2021. Also, just know that your loan fees, however, have essentially remained the same. For a Federal Direct Stafford Loan, you are going to pay a 1.059% loan origination fee to get that loan and the Federal Direct Plus Loans, the loan origination fee is 4.236% just like it always was. So that's a high origination fee, but it's a low fixed rate. So, you may be wondering, Suze, I have a loan at a lot higher interest rate than that, should I be refinancing my loans? And I have to tell you, you probably should if it's a lot higher. Do you know that interest rates on private student loans to refinance have decreased to as low as 2.99% on fixed-rate private student loans, and as low as 1.99% on variable rate private refinanced student loans? If I were you, I would absolutely stick with a fixed rate here. Do not get a variable rate unless you are within one year or two years of paying it off and just know to get those rates, you really need to have an excellent credit score. Got that, everybody? So, I just wanted to let you know that. Now, guess what we're going to do? We're going to answer your questions. Because I can tend to go on and on, you know me, I just kind of blabber all over the place, I'm going to try to do what I call a rapid-fire so that I could get through quite a few of these. So are you ready? Jodi asked, I'm 67 years old. I've been retired for 10 years. Should I take my social security payments now or wait until I need the money? Jodi, Jodi, Jodi. Do not take them now, please wait three more years. You will get essentially 8% more per year in your payment, guaranteed to you, or that's 24% more. If you don't need the money now, why would you take it? Why would you do that? Because what are you going to do with that money? Where are you going to put it? I don't think so, girlfriend. You just wait until you are 70. Elizabeth asks, I was wondering if I should pay off my student loan. I owe $10k and I'm tired of paying towards it. I've been paying towards it since 2001. I have the funds. I am still working full time and receive a paycheck. What do you think? So, Liz, here's what I think. Just because you're tired of doing something doesn't mean that you should do it. With $10k left, given that we're still in the midst of this, you know, COVID crisis, and you have the funds to do so, why don't you just take $1k a month, and put it towards the student loan? It will probably be paid off within 10 months. If anything happens, in the meantime, you can always stop doing that. But I would not take $10k out in one lump sum and pay it off here at this particular point in time. Remember, everybody, cash is where you want to be in case of an emergency. Joel asks, should I borrow from my 401k to pay off my house? I see the benefit to be that I own the house and I'm repaying myself. Is that true? I owe $50k and I have a 3.75% interest rate with 10 years remaining. I'm 53 years of age. I had $150k in my 401k, but that's going down fast. Joel, I know what you're thinking. You're thinking that the government is allowing you now to take out $100k from your 401k, penalty-free, and you don't have to pay the taxes on it for three years. And you should take that and pay off your house because you think the markets are going to go down and you could make probably more by paying off your home. At 53 years of age, I would not do that, I would not do that, I would not do that. What I would be doing is I would continue to be dollar-cost-averaging into my 401k. I would leave it exactly like it is. I would just continue to pay the mortgage on my home. You say you only have 10 years left, which puts you at 63. That's perfect, and get the tax write off in the meantime. Do not take money out of your 401k plan to do this. Got that boyfriend? From Mark. Hi, Suze. I'm a government employee, and they offer a 457b plan in both traditional and Roth. They do match, but only 1% of my gross pay, provided I contribute 1%. My question is, is that really worth it, or would I be better off prioritizing a Roth IRA on my own? Mark, you can do both, you can do both. Do the 1% into your 457 Roth where you work, let them match, it is free money. Do not pass up free money. Then open up your own Roth IRA on your own wherever you want to. If you max that out, then what you would do after that is go back and contribute more to your 457 Roth if you want to. But don't give up the match even though it's just 1%. By the way, what does that mean? Is it really worth it to get 1% on my money that's just free? When you're walking down the street and you see a quarter, don't you stop to pick it up? Money is money. JF Spin writes, when you make too much for a Roth IRA, does it make sense to put money in a regular IRA when you are going to be taxed anyway, versus putting it into a regular mutual fund account? So, JF Spin, here's what I would tell you. The reason that I would want you to open up what I call a traditional IRA, not a regular one, a traditional IRA is the technical name is that you can open it up, make it non-tax-deductible if you wanted to, and then in five months or six months, you could convert it to a Roth IRA. That is how you get that money into a Roth IRA if you make too much money to simply contribute to a Roth IRA on your own. On the Women and Money app you have the ability to search all my podcasts by what you're looking for. Go on in there, search for back door Roth IRAs, and you'll find all the information you need to know how to not get yourself in trouble by doing one. Edith asks me, with all this financial uncertainty, going on with the COVID-19, on top of it, I'm in a divorce. My question is, he is to buy me out of the house we owned together. What would be the best course of action for this? With the housing market in the bad condition it's in, could a settlement be delayed until the market is better? We also have pensions and annuities to divide. Is there anything you can suggest that would be a better outcome? I live in Wisconsin and I'm 58 years old. Edith, listen to me. Sometimes it's not just about the money. It's also about you getting on with your life. And as long as you are connected, financially speaking, to your ex-husband, I'm here to tell you your life is going to be stuck in the past. There's always going to be something that is pulling on you. So, this isn't as much about financial freedom as it is about your own personal freedom. Because with your personal freedom from your past, you are now free to create the future that you need and want to build. So, I don't care about the housing market, I don't care about anything else. Just split it and I would split it now. I think that the housing market over time is absolutely going to go down. But I don't think it has started to quite go down so bad right now. And if he is going to buy you out then the sooner you can get an appraisal before other homes in your areas have sold, it will be based on what the last comp in your area was, and I'm sure it was higher. So do not waste any time, go and do this right now. All right, next question is from En Gee and she says, hi, Suze. My husband and I were in the process of saving for a new car before the pandemic struck. We had planned to put down a significant down payment, roughly half, and then finance the remaining balance in order to purchase the car by next spring. Although we live in New York City and we can get around without a car, we are limited to places we can go since we try to avoid public transportation. Should we go ahead and put down a much smaller down payment and buy a car now? We have no credit card debt, a 12-month emergency fund, and our retirement accounts are fully funded. So, we have our finances in order. So En Gee, here's what I'm telling you. I would not be buying a brand new car right here and right now. I think if you are just a little patient, just a little patient, that you will find many people, like with real estate, where they're going to have to give up their homes and they're going to be foreclosed on and there's going to be a lot of homes on the market. There's going to be a lot of used cars on the market as well. Good cars that you should be purchasing because the second you buy a new car and drive it off the lot, it depreciates 20% to 30% in value. Why don't you just wait a little bit here? Save as much money as you can, and you'll probably find that you're going to be able to buy a used car, one that's new for you, that's in incredible condition that somebody had to give up and that you'll probably be able to buy it outright and not have to finance it at all. So, as I'm reading these, and I'm trying to go fast so that you can get a lot of these in. I just have two more left so stick with me here. It dawns on me that a lot of you are really freaked out about purchases that you have made or you're going to make or you're thinking about making. I have asked you in podcast after podcast after podcast, please don't spend a large sum of money right here and right now on anything. Postpone buying a home, postpone buying a car, just postpone doing things. All right? We don't know where the economy is really going to be headed, although I think we're going to be fine and you're going to feel better. Like I said, especially by February of next year. However, I don't know that for sure. There are many people out there that are a whole lot smarter than me, although maybe not. But anyway, where they're calling for doom and gloom, the letters that I get that make me so happy from all of you are when you're all saying to me, I'm staying low, I'm not buying anything, I'm just keep on doing what I keep on doing on and dollar-cost averaging into the stock market, in my retirement accounts. I'm not taking loans for my retirement accounts, I'm just keeping on Suze, and I'm saving as much cash as possible. Those emails make me really, really happy, and I think they would make you personally financially happy as well. This one is from Ora, she says, I'm a teacher and I'm married. We have a house in a little town in Texas. I am a professional musician that wants to play professionally again. I want to go live in the city but my husband does not. There is a property near Houston that I applied for and I got approved last December. The house is ready to close in three weeks. My husband advises me not to buy because of a possible recession or a possible depression (Ora, that's what I would say) in the near future. But I got APPROVED (in capital letters). She's screaming it at me! All right, I hear you, girlfriend. The loan is for $203k, the interest rate is 3.3% fixed for 30 years. I think it's a good deal but I'm super nervous because my husband is a co-signer on this new loan. I need advice. I think I'm thinking with my heart and not with my head. Ora, I know you want to move to the city. I know you want to be a professional musician again, but are you going to be able to do so? What does that mean? Does that mean that you play with an orchestra? That you play in the orchestra of plays that are going to be put on? I don't know exactly what that means, but I would not, I would not be buying right here and right now, number one. I don't care that you got approved. Interest rates are not going up. A loan of $203k is still a hefty payment. And the mere fact that your husband had to co-sign for this loan says that you aren't making enough money on your own to have qualified for this loan. So no, I would listen to him because you don't know if you move to the city, are you going to get hired? If where you're performing for, are they going to be able to stay in business? Operas, all kinds of professional theaters are in trouble of having to close, girlfriend. This is not the time to be doing something like that. So, yeah, you're thinking with your heart and not with your head, and that is exactly why people get in trouble when it comes to their money. So do not do it, OK? Just go there and rent a tiny little apartment, spend as little as you can, test it out, see if you like it. See if you miss your husband, see what happens. But don't buy, don't buy, don't buy, don't buy. Have you all noticed that I keep repeating myself three times when I have a really strong opinion on something? No, no, no, don't buy, don't buy. All right, one more here. All right, this one is from Michelle and she says, Hello, Suze. Last year in May, my husband of 17 years... When somebody starts out like that, I don't like where this is going. Here it goes, left me to seek out if the grass is greener on the other side. We sold our house, with the net we paid off all of our combined debt. With what was left, we split the balance. Since then, I have gotten myself back into debt. Now, I'm at $51k of total debt. I made several emotional purchases and helped out my kids. I was really depressed and kept spending to ease my anguish. Now, a year later, all of my money is going to payments. I have no wiggle room and don't know if I can sustain all these payments. I am so far not behind, but I don't think that will be true come June. I have no emergency fund and no savings. I thought of debt relief or bankruptcy but I don't know what to do. Can you please help me? Ah, Michelle, I'm so sorry to hear this. But before I answer you, I just want to say something to everybody listening. Do you now understand why I say fear, shame, and anger are the three internal obstacles to wealth? Michelle went out and emotionally spent. She was angry at her husband for going to seek what else was out there better than her. She was afraid of how is she going to make it on her own? And she was probably ashamed that she didn't even know that this was happening. All three of those emotions were ticking at one time, and now we have a woman who is not only financially essentially bankrupt but still emotionally bankrupt. However, not for long. She helped out everybody else, her kids. Maybe your kids can help you out now, girlfriend, but here's what I want you to do. The entire theme of the Women and Money podcast is my desire and dream for all of you to be strong, smart, and secure. And it is said that when you have $51k of total debt, and you probably don't even have that much money because you don't have any money now, you don't have a savings account, you don't have an emergency fund, you have nothing. You are technically bankrupt. So now here you are, emotionally bankrupt, financially bankrupt, and technically bankrupt. So if I were you, and I don't say this lightly, I would claim bankruptcy. I know you're all saying, but Suze, she's paying the money, she's paying the money? Not really. She's paying it, she's not going to be able to do so in just another month, another two weeks. And I get that she went out and she spent money. But Michelle, you were a woman whose heart was broken. So, you did these things, and now you see your ways. So now you are turning the situation around, but you have to be strong. And to be strong, you have to be willing to say, yeah, I need to claim bankruptcy. I need to start over. I need to take whatever money I have, especially now that I am getting older and I need to do what? I need to save it for myself. I need to take care of myself, I need to stop taking care of other people. My kids are going to make it on their own, and I am going to put myself first. And the very first thing that I am going to do is I am going to claim bankruptcy and I am going to start all over again. I don't care that it's going to ruin my FICO score. I don't care what others are going to say about me. All I care about is that I understand what I did, and I'm never going to do that again, and I am going to be strong, smart, and secure, and I am going to make it that I have the greenest pastures ever in my own life, and I love my life and I'm going to do this tomorrow. That's what I would tell you, Michelle. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
Credit & Debt, Saving, Investing, Retirement