Credit Cards, Home Equity Line Of Credit, Home Mortgage, Interest Rates, Investing, Loans, Saving
December 05, 2019
Listen to Podcast Episode:
In this rapid-fire podcast of Ask Suze Anything, we hear questions from Women & Money listeners Jamie, Norma, Danielle, Michelle, Cindy, Phil, Nicholas, Jacqueline, Mohammad, Lauren, and Valerie.
It's Ask Suze Anything podcast day. This is where you write in, you send in a question to AskSuzePodcast@gmail.com, that's S-U-Z-E. If chosen, I'll answer it on this podcast. You never know when I'll actually send you a response personally, and then you never know what I'll do with it. However, I do read every single one of them. So, let's do another rapid-fire, you seem to like that. Sometimes you tell me, Suze, you go on so long, so long, can't you just answer questions and get on to the next one? What if what you're saying doesn't apply to me? We have news, every single question applies to you. If you were to just think about it, it might not apply to you right now, but it could apply to you in a year from now or 10 years from now, or whenever it may be.Let's start with Jamie. She says hi, Suze. I'm 31 and I've followed you for a long time. My mom always had your show on when I was in high school and now I listen to your podcasts. Just before I go on reading anymore, do you have any idea how much I love the kids that I'm meeting today that are in their 30s, in their 40s, and I know, Suze Orman, you can't call me a kid, I'm adult, I'm 30 or 40. When you're 68 I can call you a kid. But I love that you would sit with your mom or dad or your parents, whatever it was and watch the show. Because so many of you now really are so financially great because of that, and it makes me so happy. Jamie goes on to say, thanks to you, I snowballed my $63,000 of student loans in seven years. For those of you who don't know what Jamie is talking about, very simply, she paid off her student loans of $63,000 in seven years. Love that Jamie girl. Anyway, since then I've been saving my cash in a regular savings account, but I'm wanting to open a high yield savings account. However, I'm lost when it comes to which one to choose. I have $83,000 in savings and would really like to be earning more interest on this. What should I look for? What are the important things to consider when opening one of these accounts?Really, Jamie, it's very simple. You want to look for an account that has the highest possible interest rate, obviously with the most liquidity, and that is F.DI.C. insured. However, you might want to look to credit unions as well, because credit unions, many of them offer you a higher interest rate than some of these accounts that you can find. So look at all of them and good on you, Jamie girl. Good on you. The next one is from Norma. She says, Suze, I love your show. You always give great advice. My question is, I took out a Home Depot credit card to pay for home improvements throughout the years, interest-free for so many months. I was doing good paying it off, but then the no interest rate expired and bam, I was hit with interest of $4500. My bill went to $13,000. I've been trying to transfer the amount with no interest cards or very low-interest cards, but none will accept such a high payment I owe. Should I try to refinance my house, or should I keep paying the high $500 a month payment they want? Or get a loan from a credit union to pay it off? I know I should be paying this. I got myself in a real fix, the interest rate is at 25.9% I have noticed I feel house broke now and I can't buy any extras. This is awful, I need your help. Thank you, Norma.Before I even answer you, Norma, I need all of you to listen to me. Whenever you see a deal such as by this, get a credit card and buy this furniture, you don't have to make any payments for a year. Or, it's interest-free for one year. Do you know why they do that? They do that because just like with Norma, they know that you won't be able to pay it off in one year. That yeah, you're making the payments interest free, but then you get enticed and you buy something else and put it on a credit card, and then you see something else and you put it on a credit card. And before you know it, a year goes by and you don't have the money to pay that bill in full. Then, bam! They are able to charge you all the interest that you would have owed on that card if you have been paying that card back an entire year or in Norma's case $4500. And they charge you the highest possible interest rate. So do me a favor, don't get yourself into that situation, don't even be tempted. I obviously could do that, knowing that I could pay it off at the end of the year. But listen, you either have the money to pay for something or you don't. And if you don't have the money to pay for it and you have to put it on a credit card or you have to finance it, you must pay the interest plus the principal. So even though there was no interest being charged on this, you should have been figuring out how much do I have to pay per month so that in a year all of it would be paid off, all of it. If you catch yourself in a situation where you take this offer and let's say it was for $5000, it was for $6000. Whatever it is, if you have the ability to do that for one year with no interest, you should be paying $500 a month towards that bill to make sure that at the end of the year, it is paid off in full, no matter what,and then you don't get yourself in a situation like Norma has gotten herself into.Listen, Norma, 25.9% interest is really high, and I get that you can't do a balance transfer because nobody will take that because of how much money you obviously owe, and probably because your credit score isn't that good either. If I were you, in this email you do say that you will be selling your home in one year, that you plan on moving. Just keep playing this for one year if you cannot change it at all. And in one year from now when you, in fact, sell your house, pay this off in full. Why don't I want you to refinance your home? There are fees involved in refinancing a home, things can go wrong. Just don't do that, all right? But just learn from this, keep paying it, sell your home and pay it off in full when you sell your home as you were planning to do anyway. I know this was supposed to be a rapid-fire. That was kind of like a slow, pokey rapid-fire.Anyway, Danielle says, Suze, I'm at a crossroads. I'm trying to decide whether the better move is to pay off my mortgage or invest. Disclaimer, I loathe monthly payments, but I see the benefits of investing. My goal was to pay my mortgage in three years, starting in 2020. But I'm also considering using the money to invest in a 403b, etc. What are your thoughts?Here's what my thoughts are. If your goal was to pay your mortgage in three years starting in 2020, pay your mortgage in three years. All of you have gotten so used to the returns that you've been seeing in your retirement accounts 8%, 10%,12%, 15%. You think that's going to go on forever, and I'm here to tell you it will not. I don't know how long it's going to go on for, I doubt highly it's going to go on for another three years. It might, though, you never know. But invest in the known versus the unknown. That is a law of money my dear, Danielle. You want your mortgage paid in three years? Pay your mortgage because if anything were to happen to you, you get sick, you get in an accident, things happen people. Then maybe your mortgage is paid off. We don't know, is the market going to go up? Is it going to go down? We don't know what tax brackets are going to be, we don't know any of that so just pay off your mortgage, that is what I think.Next one, this is actually from Michelle. Hi, Suze. My question is, in the past years I opened a few new credit card accounts just to save anywhere from 10% to 20% on something I was buying in the store but never used the credit card. Is it bad to close the credit cards where they still show on my report, and will it make me have bad credit?Michelle, you did it the way everybody should do it. You go into a store, usually, it's a department store, and somebody behind the register says, oh if you just open up a credit card you can save 20% on everything that you're going to purchase today. One reason that I hate that, by the way, is that in everybody's mind, they think, oh, I'm going to save 20% today, what else can I buy? And you then walk around the store thinking, oh, I need to buy today otherwise I'll lose that 10% or 20% discount and you end up buying all this stuff that you really were never planning on buying anyway. So there you go, it's all blown. But if you did it where you were going to just save 10% or 20% on something you were already buying and you never use that credit card again, close it down. It's not going to hurt your credit, it's not like a regular Visa or MasterCard. Credit cards at department stores are seen differently, so just close it down, it's not gonna hurt your credit report. Good on you, girlfriend.Next one is from Cindy. Hi, I retired early at the age of 57. I'm 62 now and will start to receive social security checks this coming January 2020. Before I go on with this email, Cindy, have you not been listening to me forever? I don't want you to claim social security at 62. At a minimum, I want you to claim it at full social security age, chances are, 67. I would really love to see you wait until you're 70. If you waited from 62 to 70 do you know that you would get about 78% more? Really? All right. That's not why you wrote in. Your question is, should I pay off my mortgage using a traditional IRA, which I know I will pay taxes, but no penalty. I would love the financial freedom of no mortgage payment. My financial advisor does not recommend this. I still owe 26 years on a 30-year mortgage after starting over again, $140,000.You listen to me, Cindy, and I agree with your financial advisor. Your money is in a traditional IRA. If you need $140,000 to pay off your mortgage, you're going to have to take out maybe $280,000. So after you paid federal income tax on it, possibly state income tax, depending on where you live, maybe then you'll have $140,000. Are you crazy? You are not going to do that, it makes absolutely no sense. But you are the perfect example of why I keep saying invest in a Roth IRA, invest in Roth accounts. Because, Cindy, if all of this money had been in a Roth IRA, you could take out $140,000 with no taxes, no penalties, nothing, and pay off your mortgage. And then that's how you would be wanting to live. But no, because it's in a traditional IRA, you can't do that, so you just have to continue to pay it. However, you still owe 26 years on a 30-year mortgage. Why don't you have a new amortization schedule done and see how much you would have to pay per month so that it would be paid off in 15 years? Or refinance it to a 15-year fixed-rate mortgage? Because interest rates on 15-year fixed-rate mortgages are .5% less than probably what you're 30-year mortgage is currently. Then in 15 years, or possibly paying more per month, it would be gone in 10 years. And then what would happen? Your traditional IRA would continue to grow, everything would be great, and that's what I would do if I were you.The next one is from Phil, one of the men smart enough to listen. Hi, Suze, I love your work. I really could use your advice. I'm 57, work full-time, I will have a pension when I retire. I contribute to a TSP. If you don't know, everybody, that's a thrift savings plan, usually for nonprofit workers. I'm eligible to withdrawal $16,000 now. I have a student loan with a balance of $40,000 and the interest rate is 6%. I hate having that debt, so I was thinking, when my TSP balance gets higher, to use it to pay off the loan. Your opinion is very much appreciated.Phil, again, just like with the last question. When you withdraw money from any retirement account that is other than a Roth, and you have a thrift savings plan, which is exactly like a 401k or 403b, but it's a traditional one, which means you funded it with pretax dollars. When you go to withdraw it you're going to owe ordinary income tax on it. So, do not wait to pay down the student loan with money that is in your TSP. You would be far better off just tackling the student loan on its own. You have an interest rate of 6%, look into refinancing that student loan.Nicholas asks hi, Suze. What is your opinion on investing in REITs? Again, REIT is short for real estate investment trust. So if you want to invest in certain types of real estate, you can do it in a REIT. He goes on to say since they are required by law to pay dividends to their shareholders, are they a good place to keep your money in times of recession? I frequently hear you say that when the markets are down, dividend-paying stock is how you keep getting a return on your money, and I would figure investing in real estate like they are shares of a company is a good strategy to diversify your portfolio. Thank you and love all that you do. Nicholas.Nicholas, listen to me. I happen to love REITs. But not all REITs are equal. So, you really have to know what you are doing. I can personally tell you that for myself, I've purchased quite a few REITs lately, but that invests in real estate that holds towers for the 5G networks that are coming out because I think 5G is a great place to invest. So, I have stocks that I've invested in within the 5G sector that makes the chips that make the towers. But I have two or three really great companies that invest in towers, cell towers for the 5G networks, that are REITs. So it's not just real estate. What kind of real estate? Are they good investments? I think those are.Next question on this Ask Suze Anything rapid-fire segment is from Jacqueline. I am purchasing 2.4 acres in the back of my home where I live. I took out an equity line of credit against the home I live in. I am paying interest only and I seem to not be getting anywhere.Well, of course, Jacqueline, you're not getting anywhere. When all you do is pay interest, you're not paying down the balance of what you owe. So why would you think that you are getting anything there? She says I need help on what else I can or should I do to help myself get out of debt and pay this off sooner? Thank you.Here's what you do, Jacqueline. You just simply have an amortization schedule created for you. How much do you need to pay every single month so that in X amount of months or years, this loan is paid off? Never, ever just do an interest-only loan, that's not in your best interest to do.The next one is from Mohammed, he says, I'm a big fan and I actually need your advice. Well, that's good, Mohammed. I'm interested in applying for a dental internship program that might cost me about $35,000.Before I go on, Mohammed, this isn't where you should be using words like, "that might cost me about $35,000." I want to hear you say that it is going to cost me X, and you know exactly what it's going to cost you because otherwise, you can get in trouble here. You have to know what the dental internship program will give you. Will they find a job for you? What's expected of you? What are the credentials afterward? So you have to know all that?You then go on to say I only have about $20,000 in my savings and my expenses are about $3000 a month. I think I need about $100,000 from Wells Fargo so I can pay for the program and pay for all my expenses in the year, plus the interest rate. Do you think this is a good idea?Mohammed, I have to tell you, I don't. I just don't because I'm not exactly sure what a dental internship program means. How much will you be earning the first year after you get out of this program? There is a rule of thumb, and it's this. Never borrow more in loans then what you will be earning in the very first year, what your salary is going to be. So is your salary going to be at least $100,000? Do you know that you're going to be able to get a job? I personally think you need to do a little bit more investigation before you get yourself into $100,000 of debt. I don't think so.All right, I have about five minutes left of this podcast. Let's see if I can get through these two other ones that I have. Hi, Suze, I'm a new nurse practitioner and I'm getting serious about my finances. This is from Lauren. Good Lauren. She says I have $55,000 in student loan debt. My highest interest rate, all federal, is 5.5%. I'm looking at refinancing to get a lower interest rate, however, given that I'm in health care, there is a possibility that I may be eligible for loan forgiveness in the future if I work in a qualified facility, but not if I refinance. So my question is, should I go for the lower interest rate and/or keep the federal loans with the opportunity of getting loan repayment.This is a hard one because many people who are going into the student loan forgiveness programs are finding at the end of the 10 years where your student loan is supposed to be forgiven with no tax consequences at all, they didn't do it correctly. They weren't direct student loans, they didn't pay it the way that they needed to pay it. So after 10 years of paying, they were no better off at all by having done that. So you have to know, are you going to get into this program or are you not? Will your loans be acceptable? Will they not? If I were you, I would keep paying at my 5.5% interest rate until you knew for sure if you were going to be doing the student loan forgiveness program or not. Therefore, hopefully, you are on the standard repayment method where you will have this loan paid off in 10 years, and I would just stick with that. I would keep it at a federal loan before I went in to refinance or do anything else until I knew what I was going to do.And the last one is from Valerie. Hi, Suze. I currently contribute up to my employer's match in a traditional 401k. However, my company is in financial trouble and has eliminated the match to our 401k. Is it better to put my entire contribution into the Roth 401k that is offered? If I do that, am I still eligible for the match when the company offers it, or do I need to be actively contributing to the traditional 401k to get the match?Valerie, and all of you that are listening, one of the huge mistakes that you are making, because you are under the belief that in order to get the company match, you have got to put your money into the traditional 401k since the match that your company gives you goes into the traditional 401k. That is not true. You can put your money into the Roth 401k at that company, and your employer will still put their contribution into the traditional 401k. So you don't have to put any money at all if you don't want to into a traditional 401k simply to get your employer's match.All right, I did it. I did all this in under 30 minutes, I can't quite believe it. Anyway, that's another Ask Suze Anything podcast. In providing answers, Suze Orman is not acting as a certified financial planner, advisor, a certified financial analyst, an economist, CPA, accountant or lawyer. Suze Orman does not make 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. Suze Orman does not accept 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 the use of the information. To find the right Credit Union for you, visit https://www.mycreditunion.gov/. Interested in Suze's Must Have Documents? Go to https://shop.suzeorman.com/checkout/cart/index/.
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.
Get the 4 Must Have Documents that you need to protect your tomorrows today....
Credit & Debt, Saving, Investing, Retirement