Interest-only Triplex?

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

I've been out of college for a few years, and I have no debt. I'd like to start investing, so I'm thinking about buying a triplex, living in one of the apartments, and renting the other two. Should I get an interest-only loan for this?

Chad

Dear Chad,

Never, ever get an interest-only loan! If you can't make this idea happen on a 15-year, fixed-rate mortgage that takes no more than 25 percent of your take-home pay, then you can't afford this project.

Think about this too. If you buy a complex and live on the property, you'll have to set down and enforce some strict renter's guidelines. Living with renters can be tricky, because they'll have access to you 24 hours a day, and some of them will abuse the privilege. Then again, you'll have that kind of access to them as well. Not exactly a bad thing when you have people living in a complex you own.

Here's an option. What if you just bought a nice, inexpensive single family home for yourself? You wouldn't have the cash flow, but you will have the appreciation and a better chance of reselling down the road. Plus, if you want to invest further, there are always mutual funds.

Real estate plans work out just like you want them to only about half the time. Don't discount the risk and expense either!

 Dave

Taking the trip

Dear Dave,

I have to make a four-day business trip to Hawaii soon, and my wife would like to go along. It's okay with my boss, as long as we pay her way, and I would love to have her along. It will cost about $1,500 for her to join me, and I make a little over $100,000 a year. We're also debt-free, except for our home, and we're working hard to pay that off as soon as possible. What do you think?

Michael

Dear Michael,

If I were in your situation, and I told my wife I didn't think it was a good idea or we couldn't afford it, there's a good chance I'd be sleeping on the couch for a month. Take your lady with you!

You guys have a six-figure income, and you've got no debt but your home. So, a four-day trip to Hawaii for $1,500? Yeah, I'm definitely doing that. It sounds to me like you two have done a great job with your money. That being the case, you deserve a little fun — like a trip for two to Hawaii for $1,500. Even if you have to work, you'll still have lots of time together, and she'll be able to relax on the beach, swim and sightsee while you're taking care of business.

Have a great time, you two!

Dave

You can't just cruise

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

I work for a small company that just won a cruise trip for all the employees. The prize covers just the cruise tickets, and we have to pay for everything else. The problem is that my wife and I currently have more than $50,000 in debt, not counting our home, and about $10,000 of that is in collections. We're trying to fix our finances and start saving money, but we just don't feel like we should take a trip right now. How do I tell my boss?

Ricky

Dear Ricky,

First, let me say how proud I am of you and your wife. Most people would be really irresponsible in a position like this and simply borrow more money to take the trip. The fact that you're behaving like mature adults tells me you're on your way to getting out of debt and solving your financial problems.

I've got to wonder, is there a lot of pressure from your company to go on this trip? I understand the benefits of team building and socializing with colleagues, but when you have no savings and are that deep in debt — and a chunk of that includes some in collections — it's no lie to say you can't afford to go. A decent company will understand.

Just sit down with your boss or owner, and explain why you can't make it happen right now. You don't have to unload all the details, but let them know that you can't do something like this in good conscience when you're trying to get your finances under control and already owe a lot of money.

That's one heck of a temptation you're standing up to, Ricky. I love that you and your wife are on the same page and have made the decision to take control of your finances together!

Dave

He set you up

Dear Dave,

I'm a senior in high school, and I have a job after classes and on weekends. I made a down payment of $2,500 on a $7,500 motorcycle last week, because I always wanted to have one before I got out in the real world and had bills and other responsibilities to think about. I asked my dad if that was a smart move, and he said I should ask you. So, what do you think? Should I go ahead with the purchase?

Tad

Dear Tad,

I'm glad you're working and learning the value of money and having a job. But I think your dad set you up on this one. I've got a feeling he knew what I'd say, and he wanted you to hear it from me.

I teach people how to stay out of debt and build wealth. And there's always one thing I remind folks of when it comes to buying anything — if you can't afford to pay cash for the whole thing, then you can't afford it. The only thing I back off on is when it comes to buying a house.

I love shiny things that go fast, and so do a lot of people who work here at my office. Right now, there are about six or seven motorcycles sitting in our parking lot, and they're owned by folks who make good money. And the bikes sitting out there probably range in value from about $1,000 to $10,000. But you know what? Whoever rode in on the $1,000 bike had just as much fun as the one who owns the $10,000 bike.

A motorcycle is a toy, and you should always pay cash for toys if you want to be wealthy one day. Having lots of payments and handing your paychecks over to the bank is not the way to build wealth. I would advise talking to the guy at the bike shop to see if you can rework this deal for a ride you can actually afford!

Dave

Young, jobless, and scared

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

I'm 23, and I lost a good job a few days ago due to layoffs. My wife has been a stay-at-home mom with our 10-month-old daughter, and we have very little in the way of savings. What can we do to keep our heads above water?

Seth

Dear Seth,

I'm really sorry you're going through this. I've been there, so I know this is a scary time for you. There are some short- and long-term goals to think about in a situation like this, but let's look at the immediate future.

Go crazy about finding some kind of income. I don't care if it's delivering pizza during the week and working at the mall on weekends. Even if it doesn't completely replace your previous income, it will give you some cash to pay bills and stay afloat. On your off days, and before and after work, you can line up and do interviews for a more stable, full-time job. You may even have to trade off babysitting duties with your wife so she can earn some money too.

While all this is going on, have a garage sale and sell anything you don't need or want anymore. Just about anything that can be turned into income should be turned into income. In the process, prioritize your bills and other financial responsibilities. Take care of food first, then utilities, the mortgage or rent, then transportation. You guys don't need to see the inside of a restaurant for a while unless you're working there, and if things don't get better by Christmas, any gifts you give should be handmade crafts.

This is doable if you two work hard, pull together, and focus. God bless you guys, Seth.

Dave

Accounting 101

Dear Dave,

I've just started my own small business. As the owner and only employee, how do I determine my profits?

Brittany

Dear Brittany,

Here's a basic Accounting 101 definition for you, regardless of how many employees you have or how big your business may be. What you take in, minus expenses — in other words, your revenues minus your expenses — equal profit. Believe it or not, it really is that simple.

Since you're just starting out, I'd strongly advise you to set up a separate checking account for your business. That's the only way to accurately tell exactly what's going on within the business. When you co-mingle business money with grocery money and things like that in your personal account, you'll never have an accurate picture of what's really happening with your business.

Good luck, Brittany!

Dave

Mother is 95 years old; where should retirement go?

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

My mom is 95 years old, and she's in amazing health. Financially speaking, she has about $150,000 in Certificates of Deposit, money market accounts, and savings bonds. Is there a better place she can invest her money?

Anonymous

Dear Anonymous,

Certainly there are other investment vehicles that will make much more money than CDs, money markets and savings bonds. However, at your mom's age people aren't generally investing for the long haul, unless they're investing it for their heirs.

If she's comfortable with her finances, I'd suggest just leaving things alone. Don't try to force her into something new. At her age she may still have bad memories of the Great Depression and a negative perception of the stock market. In a case like that, mutual funds might make her fearful. I wouldn't take the chance of robbing a 95-year-old lady of her peace to try and do the "proper" thing with money.

However, if she's agreeable to the idea of doing a little better with her money, you could start by moving a little into growth stock or balanced stock mutual funds. But do something like this only if the change won't upset her and leave her fretting over her money. What we want for your mom is financial peace.

Dave

How much is too much for a wedding?

Dear Dave,

In your opinion, what is the limit you can responsibly spend for a wedding if the people involved have debt?

Paul

Dear Paul,

The cost of the average wedding in America rose to $32,641 last year. But when it comes to what you can reasonably afford, I think it becomes relative to exactly how much debt you have and what kind of income we're talking about.

If you have $5,000 in debt but you make $150,000 a year, stop worrying, pay off your debt, and save up for a great wedding. If you make $28,000 a year but you have $30,000 in debt, then you need to have a really minimal wedding. Anywhere from $3,000 to $5,000 would be reasonable in that kind of situation — and even then it's going to be tight.

The more debt you have in relation to your income, the smaller your wedding expenses should be. A $32,000 wedding would be ridiculous for someone with a $28,000 income. But $28,000 is a below-average income, so you shouldn't reasonably expect an average wedding in terms of cost. It really all boils down to ratios.

Just remember, Paul, the amount of money spent on the ceremony, reception and all that stuff isn't what's important. It's the love that two people have for each other that makes the ceremony special and the marriage one that will last a lifetime!

Dave

Cash flow school?

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

My wife and I are on Baby Step 2 of your plan, and I'm in graduate school while working full-time. We're trying to cash flow my education from this point forward after previously taking out student loans. Our household income is $90,000 a year, and we have a car payment. Are we taking the correct approach to handle all this responsibly?

Dan

Dear Dan,

I love this approach and the fact that you're willing to work hard and be disciplined to make all this happen. At this point you just need to lay your finances out and crunch the budget numbers as to what tuition and school are going to cost between now and when you graduate.

Your first goal is to do no more harm, meaning that you graduate and finish this degree without taking on any more debt. I think beyond that, and I don't know what you're paying for the school, you should have some money beyond that to work your debt snowball. Don't beef up the payments on your debt so heavily that you use up money that you'll need for tuition. Getting though school will slow down your debt snowball somewhat, but that's okay. This is a worthy cause, and you're approaching it the right way. I just don't want you to get so excited and gazelle intense about paying off your debt that you end up borrowing for tuition.

Congratulations on being really smart with your finances and your education. It's a really neat idea, and you guys are going about it in exactly the right way!

Dave

Travel medical insurance?

Dear Dave,

My fiancée and I are planning a Caribbean honeymoon cruise after our wedding. Do you think it would be a good idea to purchase travel medical insurance?

Tim

Dear Tim,

Normally, I would say travel medical insurance falls into the gimmick category. But if you're concerned about it, I would suggest double-checking your current policy through your provider to see exactly what you've got and how far it extends in terms of coverage compared to any risk factors you may be facing.

The only reason I can think of as to why your current health insurance wouldn't cover you is that you may be out of the country during portions of the cruise. In most cases and areas, I believe, out-of-network considerations will still apply in the Caribbean. But check with your insurance company for verification and details on that, too.

I've never bought travel medical insurance, and we've gone on two cruises already this year. Just do your homework ahead of time, and make sure you'll have the coverage you need in the locations you're going. Congratulations, Tim!

— Dave

Get yourself out of it

Written by Editor in Chief on . Posted in Finance

davernewDear Dave,

I make $2,100 a month after taxes, and I have accumulated $46,000 in credit card debt. My husband makes more than I do, but he won't help me. He says I got myself into this mess, so it's my job to stop being irresponsible and fix it on my own. Do you have any advice?

Peggy

Dear Peggy,

You've got a load of debt hanging over your head right now, but I think you've got bigger problems than that. You told me you're married, yet it sounds to me like you two are living entirely different and separate lives. This seems more like a roommate situation than a healthy, loving marriage.

I don't like your husband's attitude, but he does have a valid point in one respect. You were irresponsible with money, and now you've got a pile of debt on your hands. My big question is this: Where was he while all this was going on? Were you hiding it from him? And where was the communication and decision making, financial and otherwise, couples should engage in? Married people can't live this way and win in their relationship or with money.

The two of you desperately need to seek marriage counseling together. This relationship is on the rocks. You and your husband obviously have no trust or respect for each other, and there's a definite lack of communication, unity and shared goals. I don't know what happened to bring things to this point, but the preacher didn't pronounce you guys a joint venture when you got married; he said you were now one.

A little maturity, extra work, and living on a simple budget will go a long way toward fixing most personal finance issues. But your marriage is in big trouble, Peggy. Please seek help!

Dave

Why save before paying off the mortgage?

Dear Dave,

I just read The Total Money Makeover, but I'm still unclear as to why you recommend saving for an emergency fund and retirement before paying off your home. Shouldn't a house be paid off as quickly as possible, since it's a liability?

Mark

Dear Mark,

I appreciate the fact that you're asking questions and thinking things through. But please don't fall into the trap of thinking of your home as a liability. That mindset is way off base, in my opinion.

Your house is definitely an asset; it's the mortgage that's a liability. Some folks may try to position a house as a liability simply because it costs you money. But the truth is your home will make you more money than it will cost you over time. Therefore, it is an asset.

Some of the saddest situations I've seen in all my years of teaching are seniors who have paid-for homes and nothing saved or invested. Money isn't the most important thing on earth, but it is a fact of life. That's why I encourage people to build an emergency fund of three to six months of expenses and begin saving for retirement before they tackle paying off their homes.

Then, after all that is addressed, take every dollar you can scrape together and put it toward paying off your mortgage as fast as possible. Good question, Mark!

Dave

Sold Dave three timeshares?

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

My wife and I recently sat through a timeshare pitch at my mom and dad's community as a favor to them. We're trying to get out of debt and take control of our money, so when the salesman said we could put the whole thing on a credit card, I told him about you and your plan. He then said that he used to be your personal financial advisor and had sold you three timeshares in the past. Is this true, or are timeshares a bad idea?

Jeremy

Dear Jeremy,

A timeshare salesman said he had been my personal financial advisor? Wow! It takes real guts, and a bunch of dishonest nerve, to spread that kind of crap around.

No, I've never in my life owned a timeshare. I've made just about every financial mistake known to man, except that one. I've also never made the mistake of having a timeshare salesman as my financial advisor. This sounds like the kind of guy who you know is lying if his lips are moving!

I'm really sorry if your mom and dad already hooked up with this bunch. Timeshares, even with honest salespeople, are just straight-up stupid. Never buy a timeshare! The customer dissatisfaction rate with those things is sky-high, and you're pretty much stuck once you buy one. They're almost impossible to sell, because you don't really own anything.

For the money you spend to buy a timeshare, you could take several nice vacations and stay in some pretty decent places. People get suckered in to these things all the time, Jeremy, but it's a really bad idea. Don't do it!

Dave

Newlyweds buy house the first year?

Dear Dave,

Why do you recommend that newlyweds not buy a house during the first year of marriage?

Laura

Dear Laura,

Believe it or not, the first year of marriage is pretty tough. You'll both have to make lots of adjustments and get used to the new schedules and habits, likes and dislikes, that go along with marriage. You need to spend that first year getting to know each other even better, and exploring and developing your relationship as husband and wife. Running out and buying stuff like curtains and furniture — or making major life decisions like buying a house — can wait.

Devote the first year to deeper, more important things. In the process, make sure you're on the same page emotionally and financially. Develop a plan to make your hopes and dreams come true, and start piling up a bunch of cash for the future. Then, a year or two down the road, you can start the house-hunting process. There will still be great homes at good prices, plus you'll both have a better idea of what you want for the future!

Dave

Owing on commercial

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

My husband and I own three commercial buildings in Boise, Idaho, that are leased out long-term. We owe about $500,000 on one and $400,000 on each of the others, and they earn $190,000. The only other debt we have is a small amount left on our mortgage. I know you don't like debt, but is it okay to owe on commercial properties that are making good money?

Dawn

Dear Dawn,

I own several commercial buildings, and I don't owe a dime on any of them. So, I can't tell you that I think it's okay to have debt on commercial buildings. I believe the best plan for building wealth is to become debt-free.

Now, from the situation you've described, that doesn't necessarily mean you guys should be in panic mode and start selling everything in sight. But I do think that you should systematically work your way out from under these debts over the next few years.

If I were in your shoes, I'd go ahead and get the house paid off first. Then, I'd take a look at these commercial properties, and begin working the debt snowball on them. Start throwing as much money as you can at the smallest debt, while making minimum payments on the other two. When you get it paid off, roll that amount over — along with every dime you can dig up —and attack the second largest one. Follow these steps until you pay off all of your commercial properties.

It might take up to 10 years in your case, because we're talking about at least $1.3 million in debt. If you have a bunch of equity in one you don't particularly like, you might consider selling it and throwing the cash at the remaining two. But whatever the timeline, I'd develop a hardcore game plan to get rid of this debt.

Wouldn't it be cool to have all that paid for? Talk about cash flow!

Dave

Split it with you

Dear Dave,

My wife and I are debt-free except for a car and our house. The car is financed through her mom, and her dad agreed to send us half of the payment each month. We owe $7,700 on the car, and we have enough cash right now to pay off the car in full with plenty left over. Should we do this, even though her dad is making $100 of the payment each month?

Dustin

Dear Dustin,

If her father had agreed to send you guys $100 each month, ask him to continue doing that for the duration of the agreement. Then, you guys pay off the car now with your cash. There's nothing dishonest about this, as long as you explain the plan to her parents and they're agreeable.

The reason for this approach is two-fold: it gets the debt paid off, and then you can get the car put in your name. Plus, a situation like this represents drama just looking for a place to happen, if it hasn't already. Family relationships take on a weird vibe when money has been loaned and borrowed.

If they're not agreeable to the idea, that's okay. All you can do is ask. But one way or another, I'd be out of this situation before the sun goes down!

Dave

Don't touch the 401(k)

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

My wife and I make $100,000 a year combined, and we have about $12,000 in credit card debt. We also owe another $80,000 in student loans, and our kids' private school education costs $1,000 a month. Is it okay for me to take a loan against my 401(k), which is invested in mutual funds, to clean up the credit card bills?

Stephen

Dear Stephen,

I wouldn't do that. If your 401(k) is invested in good mutual funds, it's likely you'll miss out on some pretty good rates of return. But that's not the biggest reason this is a bad idea.

The biggest reason is that when you leave your company — and you will leave, whether it's because you get a better job, you get fired, or you die — that loan is considered an early withdrawal. If you don't repay it within 60 days, you'll get hammered with a 10 percent penalty plus your tax rate. You could easily lose almost half of what's in the account.

If you want to start paying off debt, my advice is to start doing things to generate extra income and begin living on a tight budget. Grab an extra, part-time job for a while, too, and have a big garage sale. Sell so much stuff the kids think they're next! You need to work a serious debt-busting plan.

The good news is it's only $12,000. Knocking out the credit card debt won't be so bad, and with your income, the kids' school isn't unreasonable. It's the $80,000 in student loans that's killing you. Scrape together and save every penny you can find each month, and put that toward paying off the credit card debt. Then, roll that amount over, add anything else you can come up with, and attack those student loans.

You can do it, Stephen!

Dave

Kicked out, starting out

Dear Dave,

I'm 19 years old, and I just got kicked out of the house after wrecking my dad's truck. I've got a job making $12 an hour working about 40 hours a week, and I'm currently living with a friend at his apartment. I have a goal of going to college, and I'd like to get out of my friend's place as soon as possible. Do you have any advice some someone just starting out?

Brandon

Dear Brandon,

That's a tough situation, buddy. I'm sorry things worked out that way with your dad. You're going to need more money than what's coming in, so let's prioritize things.

Your first goal is food, and your second goal is to help your friend a little bit with the rent. After that, you need to save up and get a car as quickly as possible. I'm talking about a total beater — a $500 to $1,000, mechanically sound, basic, ugly car. They're hard to find, but they are out there.

After you've done this and gotten some stability in your life, start thinking about saving for a little bit better car. This may mean picking up an extra part-time job for a while. Then comes piling up some cash so you can get your own place. Let's get all this out of the way before you start thinking about school. Right now you barely have a place to live, and you've got nothing to drive.

Listen, I love your motivation and the fact that you have dreams and a goal to better yourself. You've been through a lot, but let's get the basics taken care of first, introduce a little stability into your life, and then we can start coming up with a plan for school and a long-term future. Good luck, Brandon!

Dave

Paying cash doesn't make it smart

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

What is your opinion on paying cash for a "tiny house"?

Wes

Dear Wes,

This may be a really un-hip or un-cool thing to say, but I wouldn't buy a tiny house at all. Paying cash for something like that might make the mover smarter, but that still doesn't mean it's a smart choice.

Now, don't take what I'm saying the wrong way. I don't have a problem with people who build tiny houses or buy them. My problem with these things is that there's no track record on them. There's also a pretty good chance they're going to be just a fad. Another problem is that you'd have a really small market when it comes time to sell your tiny house. In other words, they probably won't go up in value like a traditional home. They may actually lose value over the years.

There's a thing in economics called the supply-demand curve, and from what I've seen tiny houses also have a tiny demand and pretty narrow market appeal. Their appeal seems to be mostly for early adopters and people who think they'll never be able to afford a house. That means they're not going to have broad appeal when you get ready to sell them, either. And that creates a problem.

I could be wrong, though. I mean, if enough people buy tiny houses and they become a real part of our culture, then maybe they'll do okay. But right now it's an unproven product line and an unproven concept. So I wouldn't buy a tiny house. Honestly, I wouldn't even buy one at half of its current value because I'd be afraid it would drop to a fourth of its value. There's just no proven record at this point of these things going up in value.

Dave

Did dad do her wrong?

Dear Dave,

My father loaned my husband and I money 20 years ago to help us start a business. The business eventually failed, and it forced us into bankruptcy. After this, we never seemed to get around to paying him back. He died earlier this year, and when we got together with my brother and sister for the reading of the will, we realized he had deducted the amount of the loan from my inheritance. Everything was equal between us before that. I think that's wrong. What's your opinion?

Karen

Dear Karen,

I'm really sorry about your dad. I'm also sorry this was never taken care of or discussed while he was still alive.

There are a lot of emotions at play, so I don't want to beat you up too much. But legally, he didn't have to leave you anything in his estate. The stuff we're talking about, money included, was his to do with as he saw fit. It was a little odd that he didn't address this with you beforehand, but there are lots of instances where kids get nothing from an estate or not as much as others. It's not uncommon.

In my mind, and, from the sound of it, his too, he left you an equal share minus what you still owed. He loaned you the money, and he had the right to set terms on that. I understand your frustration. You feel like he took something away that was yours. My point is it was never yours; it was his.

I know it still hurts though. This is one of the reasons I advise never borrowing money from, or loaning it to, relatives. The best of intentions can end up in places like this.

—Dave

Mother is elderly; does she need long-term care insurance?

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

I'm trying to help my elderly mom with her finances. She has no debt and more than $1 million in assets. There was also another $500,000 trust left for her by my dad. With access to all this, does she still need long-term health insurance?

Anonymous

Dear Anonymous,

Absolutely! She also needs an estate planner immediately. Your parents were far too wise with their money to have your mom end up in a bad situation toward the end of her life. You need to do everything you can to prevent this from happening.

In the event she's unable to take care of herself, long-term care health coverage to take care of nursing home or in-home care is an absolute necessity. The cost of nursing home care can run from $75,000 to $100,000 a year. Your mom is in great shape financially. But just imagine what a prolonged nursing home stay could do to her nest egg. It's not a pretty thought.

When you hit 60, you need long-term care insurance, period. Whether you have $1 million-plus in the bank or not, I strongly recommend it as a wise part of any asset management plan.

Dave

What is a money market account?

Dear Dave,

What exactly is a money market account?

Julie

Dear Julie,

Money markets are short-term financial instruments. Money market accounts pay about the same, maybe a little bit more, than traditional savings accounts. If you get a money market account with a bank, you've basically got a savings account that mirrors — or pays about the same — as the actual money markets.

Now, if you get a money market account with a mutual fund company, you're actually buying into the money markets. The big difference is that the mutual fund companies are a lot more flexible, and they don't have FDIC (Federal Deposit Insurance Corporation) insurance.

I have my emergency fund parked in a mutual fund company money market account, and the great thing is that it's fully liquid — meaning there are no penalties to take cash out at any time. It's a perfect place to keep an emergency fund!

Dave

Rental runaround

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

My husband and I had to rent a car on a recent trip to Florida. When we tried to pay with our debit card, the attendant told us he would have to pull our credit report if we used debit instead of credit. He said all rental car companies operate that way, because there was concern about people stealing the cars and closing their checking accounts. Is this true? We're trying to take control of our money using your plan, and we don't want to get a credit card if we don't have to.

Michelle

Dear Michelle,

No, it's not true that all rental car companies operate that way. I have a debit card I use to rent cars everywhere I go, and I've never experienced anything like that.

There still may be a few of the smaller rental car companies that don't take debit cards, but him telling you credit cards are the only way anyone rents a car without a big credit check hassle is a bunch of crap.

When you're setting up your reservation in the future, verify in advance that you're dealing with a company that accepts debit cards and that there are no ridiculous strings attached. Then, if you don't like the terms and conditions, go to another rental company.

But don't take a chance on wrecking your total money makeover by running out to get a credit card for something silly. It's just not worth the risk!

Dave

Adjustable rate mortgage

Dear Dave,

Considering all the market volatility, why do banks offer adjustable rate mortgages? How did they come into being?

Anonymous

Dear Anonymous,

I was in the real estate business in 1978, and that was the year fixed rate mortgages went to 10 percent for the first time in history. It created all kinds of chaos, but that wasn't the worst of it all. By 1981, rates were as high as 17 percent. Banks were paying 10 to 12 percent on savings accounts, but they were making just five percent back from their products. Essentially, banks began looking for a way to prevent themselves from losing money in the future. Out of that, the adjustable rate mortgage was born.

With the adjustable rate mortgage (or ARM), banks offer a lower interest rate in the beginning to grab your attention. Then, when rates adjust they adjust up. It transfers risk to the consumer, and puts the homebuyer in a position where they're at the mercy of the markets when it comes to the amount of their mortgage payments.

Adjustable rate mortgages are a bad, bad deal. If you currently have one I'd encourage you to refinance now!

Dave

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