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April 2005

More Changes

This article was written by in Administration. 4 comments.

As I’m getting ready to post my financial reports for April, I’m making some changes to my accounting methods. I would like to get this information out in the open in case anyone has any questions or suggestions ahead of time. This would allow me to make changes if necessary, but I think everything’s going to be okay.
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Most people are predicting that interest rates on student loans will go up on July 1. It might make sense for people with these loans to consolidate before the rate increase. I still have a small portion left over from my undergraduate degree but I’ve also begun accumulating a balance from my graduate degree, 90% of which is reimbursed by my employer. Thus, I am thinking about this topic and weighing my options.

According to CNN Money, rates may go up as much as 2.5 percentage points. I’d like to avoid that if possible.

One solution is consolidation of the student loans. There are advantages and disadvantages to consider, however.

First the advantages:
* Paperwork simplification. This isn’t really a big deal to me since I do everything electronically.
* Lock in low rates. Presumably, rates will go up. You can work with the loan consolidator to wait until the night before July 1 and if the rates end up going down, you can consolidate at the lower rate.

The disadvantages:
* No grace period. If the borrower is still in school when the consolidation occurs, the grace period is forfeited and the payments become due immediately. I’m fine with this situation as I’m going to school part time while working full time. Plus, as my company reimburses me, there will be very little I’ll actually have to pay.
* Only one consolidation allowed. Once the loans are consolidated, you miss any future opportunity to consolidate again at a lower rate. In the current environment, I don’t think raets will be lower in the near future.
* Less benefits. Many lenders offer incentives such as several percentage points off interest for making on-time payments or getting decent grades. Consolidation may not offer such incentives.

I’m certain that in my position, I should consolidate at the low rate now and pay off the student loans as quickly as possible while still maintaining a safety cushion of emergency cash.

Many people I know are buying or have bought their first houses with help from their relatives. It’s great that parents and grandparents are able to help the new buyers out with getting their feet in the door that leads to a great wealth-building opportunity. There are, of course, some issues to consider if you are thinking about taking this path, and Penelope Wang of Money Magazine lays them out on the table.

These are her guidelines for the parents:

  • Your own security comes first. Don’t sacrifice a high percentage of your savings.
  • Don’t confuse giving with investing. You’re doing this out of the goodness of your heart, not because you’re expecting a return on your investment.
  • Sometimes it’s better not to give. If the kid isn’t financially responsible, let him learn discipline by saving and investing on his own first.

If you’ve considered these points and still want to help the buyer out financially, also consider these options:

  • Let them live at home. This is common. Kids can live at home with their parents, saving money, until they’ve accumulated enough to buy a house.
  • Help them with the down payment. There are some tax rules that you will have to consider, like the $11,000 annual gift exemption. Make sure you check with a tax accountant.
  • Cosign a mortgage. This puts you on the hook if the buyers stop paying the mortgage.
  • Buy their house. This is the quickest way to make sure the buyers aren’t priced out of an increasing market, but the value of the home is deducted from the $1,000,000 lifetime gift limit.

I am planning my life with the expectation that I will not receive any assistance from family when it is time to purchase a house. My parents are not likely to be in a position to help me out.

Money Magazine

Last September, I posted about Wachovia adding a $50 annual fee to its individual investor discount brokerage account. I was disappointed I couldn’t get it waived, so I decided that I would transfer my funds out in 2005 before getting charged another annual fee in September. The account termination fee was $75, so I’d be paying $25 more up front, but saving money down the road by investing with a no-fee broker.

I received notification today that as of May 1, the account cancellation fee will increase to $95. This account is costing more money than it’s generating.

Goodbye, Wachovia — hello, Scottrade. I filled the forms out as soon as I got home. I’m not waiting until May 1 to take care of this. I’ll also switch my investment from AIVSX to VTSMX or something similar, once everything is settled.

Also: I’m going to be on vacation starting Friday and returning the following Saturday. If you’re interested in guest-blogging on Consumerism Commentary, let me know by sending an email.

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How To Blog Safely

by Luke Landes

The Electronic Frontier Foundation — you might remember them as the group behind the Blue Ribbon Campaign if you were writing formative blogs or other websites in 1997 — have published an important article for people who write online. The organization exists to protect fundamental rights regardless of the technolog involved. Specifically, those of us […]

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How to Loan Money to Family

by Luke Landes

Many people frown on lending money to family. Doing so runs the risk of hurting otherwise good relationships. In this MSN Money article, Liz Pulliam Weston talks about how to lend or borrow money from family while avoiding the pitfalls. When lending money to family, heed this advice:

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Income and Expenses, March 2005

by Luke Landes

This entry goes hand-in-hand with my March account balances. Continue reading this entry to see my chart and explanation.

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Account Balances – March, 2005

by Luke Landes

March was an interesting month. I took out a new student loan to pay for my MBA (while awaiting reimbursement from my company) and received a small portion of that for “living expenses.” It should help me out a little, and I only took it knowing I can come out slightly ahead with that money […]

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