This week’s “Ask the Readers” is a little different. After reading Trent’s weekly “mailbags” at The Simple Dollar for the past year, it occurred to me that a similar format might work for Get Rich Slowly, allowing me to answer more of the reader questions I receive. This is a test of the concept.
What I’d actually like to do is keep the regular “Ask the Readers” for Friday mornings, but add a reader mailbag for Friday afternoons. What do you think? Would you like to see a new mailbag feature? Mailbag only? “Ask the Readers” only?
My goal is to be able to help as many people as possible, and to get you, the readers, to offer your input, too. Here, then, are the four questions and one success story I selected for this week:
Online IRA brokers
Gavin wants to open an online brokerage account:
I have an employer 401(k) that I have to rollover to an IRA or Roth IRA. I’m looking at online brokers like Fidelity, Vanguard, Wells Fargo, Schwab, etc. Any advice on which is the best? I’m mostly concerned about a broker that has no fees, and I can sit my money in an account that I won’t have to pay attention to all that much.
This is a fantastic opportunity for reader input. Which online brokerage do you use, and are you happy with it? I’m not sure there’s any one best answer. My Roth IRA used to be with Sharebuilder, but I’m in the process of moving it (and all of my other accounts) to Fidelity. I’m not a raving fan of Fidelity, but they have been helpful, have a good interface, offer some low-cost index funds, and most importantly (to me), they have a nearby office I can visit if I want help.
I’m curious to see what GRS readers recommend for online brokerage accounts.
Ally Bank and rate-chasing
David asks:
I’ve been reading your blog for some time now and I’m a big fan. Like you, I use ING Direct as my bank and am completely happy with it. However, I started noticing that Ally Bank has a significantly higher yield with a similar banking philosophy. I was wondering what your thoughts were on this bank and if it was worth switching.
Ally Bank is the re-named GMAC bank. The company is struggling now, and in order to stabilize is trying to obtain additional deposits. The increased financial resources will help them fund their needs, but some analysts believe the company will need another government bailout.
That said, Ally Bank is FDIC-insured and offers a great rate. If your deposits are under the current FDIC insurance limits, it might make sense for you to move there. I’ve not used Ally Bank myself, so I cannot comment on its web interface or customer service. You can probably find user experiences on the GRS savings account page.
Is rate chasing a good idea? That’s tough to answer. For some people, it can make sense. For others, it’s not worth the time and effort. For people just opening a high-yield savings account, I generally recommend going with a bank that earns high marks for customer satisfaction and offers high interest rates. For those with existing accounts, it’s a judgment call. I’m content with ING Direct. You may not be.
Paying down multiple loans with the same interest rate
Here’s Kelly’s situation:
I have been struggling with the best way to pay off four loans with the same interest rate. I want to pay these off in whatever order will have the least interest paid overall. Here are the loan amounts:
- Loan A: $6,006.34
- Loan B:$8,162.38
- Loan C:$10,924.89
- Loan D: $19,156.14
Current Interest rate on ALL four: 6.75%
Number of payments left: 197I’d like to pay an additional $300 per month, but don’t know if I should apply this extra money “strategically” across the four loans or only to one. Does it make sense to pay the highest loan first so that I can tackle the interest portion of each payment earlier rather then later? How should I best apply this extra $300 each month so that I pay the LEAST amount in interest over the life of all these loans? I don’t care about the psychological aspect of paying these loans off — I care about paying the least amount of interest over time.
The answer to Kelly’s question is simple: It doesn’t make any difference how she pays these off. They all have the same interest rate. Assuming she pays an extra $300 every month, it doesn’t matter how that money is applied. In February’s post about using spreadsheets, I demonstrated the math on a similar problem related to interest earned on multiple bank accounts with identical rates:
This same math applies to debt repayment. My advice is to pay down the smallest loan first. It doesn’t affect the total interest paid, but it gets rid of a debt, which can provide a bit of breathing room, if needed.
Books and blogs about the next stage of money management?
Leslie writes:
I have been reading your blog for a number of months now and am a big fan. My personal situation however is perhaps a step or two beyond frugality, debt repayment, and beginner investing (which I find to be the most covered topics on most PF blogs) and I am wondering if you have come across any books or blogs you would recommend for people at the next stage of financial growth. (Call it ‘wealth management’ if you like…I don’t!)
I am looking for information on overall asset allocation (real estate, private business ownership and financial instruments), when it makes sense to stop contributing to registered plans, the best way to manage charitable contributions, etc. If you could point me in a general direction, I would certainly appreciate it!
To be honest, I can’t think of any blogs that cover this area of personal finance. I’m sure they’re out there, but I just haven’t found them yet. I would love to hear recommendations from readers. Also, please note that Get Rich Slowly will begin to cover more of this material in the future as my own financial situation improves. But it’s a slow transition.
As for books, I think there are a number of options, most of them a little dry. I’m currently reading The Quiet Millionaire from Brett Wilder, and while it has great advice, there’s no real “life” to it. Still, I think it meets Leslie’s requirements. Other books to read include:
The latter is one of my favorites. And although it’s not about asset allocation and the like, George Kinder’s The Seven Stages of Money Maturity is also an excellent “advanced” book on personal finance.
Success stories
If the money mailbag does become a regular feature, I’d like to share reader success stories and/or follow-ups to past reader questions. I think both of these can be fun and interesting reads.
Here’s a recent message from April, for example, that’s both a success story and an update on her “Ask the Readers” about whether to buy a car or pay off debt:
One huge benefit of getting our finances in shape is that I no longer HAVE to have my job. We can now pay the bills on one salary (though we’d have to suspend our saving), so as frustrating as office politics can be, I know I could quit if it was just unbearable, and that gives me a lot of peace. Right now I’d rather deal with it, keep increasing our savings, and look for something to transition into. But the point is that I don’t feel enslaved by my job anymore, all thanks to our efforts this past year.
By the way, you featured my question last year about going from two cars to one, and I thought you should know we did go to one car, used the insurance money from the other to start our emergency fund and pay off some debt, and we have yet to buy a second vehicle. It’s actually low on the priority list (building house, then vacation, then second car). I’m glad we didn’t listen to friends and family members who thought it was a bad idea.
That, my friends, is the first edition of the Get Rich Slowly mailbag. Would you like to see further installments? I’ll probably have to be more ruthless about editing messages and my responses, but this is roughly the form it would take. Let me know if you prefer this to “Ask the Readers”, if you’d like to see both, or if you’d rather have “Ask the Readers” only.
And, of course, please offer your advice to the people who submitted questions!
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I liked this range of Mailbag questions, and I would like to see the feature continue with similarly focused personal-finance topics.
How about alternating between a Mailbag and an Ask the Readers? It would give you a chance to answer a few more Mailbag notes while the GRS faithful discuss the reader query.
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J.D.,
I think you’ve tackled these questions/situations in a way that will facilitate a lot of discussion, and I for one would look forward to these every Friday. Continue to try to choose unique discussion points.
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Like it.
With regard to Kelly’s situation, I wonder if your Excel simulation actually accurately simulates what the bank does. Excel keeps track of the exact balance on each account to the nth decimal point. I suspect (I don’t know) that banks round to the nearest penny/cent, and that they probably do this in the way that most benefits them (i.e. rounding up interest on loans, down on savings). If this is the case, and like I say, I don’t know that it is, it might be worth paying one loan off before another, even if they are on the same rate. If they do this, it would then also make a difference whether they calculate interest on a daily, weekly, monthly, or annual schedule.
Does anyone know for certain whether banks apply rounding to customer accounts when applying interest?
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As I Twittered it would be great to have both the Mailbag and an Ask the Readers!
Well Ally has slashed its rates effective today. The online savings bank is now 2.05%, MMA 1.90% and the 1 yr CD is 2.49%. Hope these rates stay the same now!
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Love the idea of a reader mailbag!
Regarding brokerages: I’d advocate heavily for Vanguard (or perhaps for Tradeking, buying ETF-versions of Vanguard funds).
For people in the “OK, I’m out of debt, and I’m no longer a total beginner to investing. Now what?” stage…
My blog suggestions would be: BadMoneyAdvice.com, BehaviorGap.com, or my own blog.
My book suggestions would be Four Pillars of Investing and Random Walk Down Wall Street.
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I have my money invested with Vanguard. I’ve really liked their customer service throughout the years and feel very confident that my money is safe. Also, they have great low cost funds that have done well over time.
Also, when I had to rollover a 401K to Vanguard, they were very informative and even called my 401K provider to walk through exactly what I needed to do to transfer the money. I was impressed. Something that I put off MONTHS to do was accomplished in 10 minutes.
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I run my family’s IRAs through TD-Ameritrade. Since IRAs have to be in the individual’s name, I like how you can link the accounts together. Trades are pretty cheap ($10), and the tools are good.
I have high-yield savings online (Emigrant Direct), but I’m starting to have second thoughts. I know a money-market fund broke the buck last year, but is that really a serious risk? Why not just move all that cash into a MM account?
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JD,
I actually disagree with you in regards to your answer to the third question about loan repayment. I am struggling with a similar situation with student loan debt, and have found that it makes sense to pay loan with the highest effective interest per day first. I have found that many loan lenders accrue interest based on a daily balance formula:
Loan Balance * Interest Rate / 365 = Interest Each Day.
Given that these loans that Kelly had all have the same interest rate, the one with the largest balance accrues the most interest per month (and makes for the largest payment). Paying down this loan first will make the effective interest per month on this loan decrease, which over time will free up extra money to put towards principal.
I understand that this will happen with the smaller loans too, but the effect is much less pronounced.
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I say do both! Reader Mailbag is my favorite feature at the Simple Dollar but GRS is my favorite money blog so I’d be very happy to see a RM here at GRS. Great blog…keep it up!
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Per Gavin’s question regarding online brokerages for an IRA, it is crucial to know how much he has to invest to start off with. I recommend going through an automatic investment plan through either Vanguard (unsure what minimum contribution is), T.Rowe Price (minimum contribution $50/month) or Fidelity (minimum contribution $200/month). As a disclaimer, I went with T.Rowe Price and contribute the minimum amount automatically to their Retirement 2050 fund. Beware of opening an IRA through a low-cost online broker, because you’ll be charged a fee for every purchase you make. That greatly eats into your returns, and hardly makes it a good deal.
Per David’s question regarding AllyBank (GMAC), I’ve been with them for about a year and I’ve been very pleased. I don’t ask for much, however when I’ve needed customer service or done a bank transfer everything works the way it should, and with an extremely competitive rate!
Per Kelly’s situation with the 4 loans with the same interest rate, is that interest rate applied top-heavy to any of those loans such as how a mortgage works? If so, she should pay down the highest balance until it reaches the loan value of the 2nd highest, then pay those both down until they reach the 3rd highest, and so on. If the interest was applied in a top-heavy fashion, this would amount to Kelly paying the least amount in interest. She should be able to look at her statments to see how much she pays in interest on each loan per month.
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I love the idea of a mail bag because I really enjoy seeing all of the answers given by readers. The only downside I can see right now is when you ask several questions in one post, the comments seem kind of jumbled. For instance, if I’m mainly interested in the answer to the second scenario, then it’s kind of hard to weed through all the comments to find the appropriate responses.
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Nice to see that this site is following the “me too” format of PF blogs [/sarcasm]. Simple Dollar is not Get Rich Slowly. JD please don’t copy Trent’s site. That’s his unique perspective and copying it doesn’t add value to your site.
Moreover, it’s extremely disappointing that the well written articles and unique perspective that made GRS great are now being watered down with endless guest posts and now mailbag questions.
Where’s the GRS that the readers loved 1-2 years ago. JD you had something unique in the PF blog-o-sphere and my concern is that it’s starting to fade.
I’m a long time reader of this blog and I wanted to take this opportunity to give my feedback. This post is not made to be inflammatory but just a cautionary note to turn back from heading in the wrong direction.
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Don’t you need to know how much Kelly pays for each loan? Certainly that would have an affect on how much interest she pays over time.
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I agree with Sceptor. There seem to be a growing number of “commercials” between the best posts here.
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Concerning Work Less, Live More: The beginning of this book is quite nice — inspiring even. However, I would be VERY cautious about following the investing advice suggested for use when living off your money in retirement. In particular, his “safe” plan for living off interest is totally off-base and doesn’t really account for the deviations in return that one will actually see. It seems that his plan results in (what I view) unacceptably high risk of running out of money in the middle of retirement.
I would second the recommendation of “A random walk down wall street.” In fact, this book will hopefully keep the “advanced investor” from getting sidetracked from what really works — and what is important. In my mind, once you are reach “wealth management” the question should no longer be, ‘how do I make more money?’ but should instead be ‘how should I use the money that I have?’ This is a much more interesting question. For books on spending habits, try “The paradox of choice” and “The omnivores delima” to start. Also, something like “Afluenza” or “The high price of materialism” might be nice, to help you avoid the pitfalls that can come with having money and not knowing what to do with it. Lastly, you might check out a book called “Choosing simplicity” which is just FULL of stories of people that are choosing to live the lives that they want to live — again perhaps more important that accruing more wealth?
I, for one, enjoy the reader mailbag aspect. I think that it highlights the advantages that a dynamic medium like blogs have to offer.
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I prefer the “Ask the Reader” format because, as Elizabeth points out in #7, with the mailbag format there are many comments for different questions, which makes it harder to track a particular letter with a question that you want to answer or to read the answers to that question.
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Regarding savings account, we have had our emergency savings account at Ally (formerlly GMAC) Bank for a few years. They have a easy to use web interface, no cluttered statements/inserts and consistently high interest rates. I hope they make it. I’m not clear what would happen if they “failed” but I imagine it would be similar to what happened to my primary bank, bought out with minimal to no disruption in customer service, but most probably the sweet rates would go away. Therefore so I’m sticking it out as long as I can.
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Unlike Sceptor (& Joey), I like the “reader mailbag” idea – on both GRS and TSD. I don’t see it so much as “copying,” since Trent and JD are two unique individuals offering their own, personal perspective on questions from their readers. In fact, I would even take it one step further saying it would be fun to see both Trent and JD answer the same (non-straightforward) question every now and again – just to get the (potentially) varying perspectives. That is the reason I subscribe (via Google Reader) to several PF blogs – to get different perspectives that I can evaluate and (may or may not) incorporate.
It is in their best interest to answer questions that readers submit – and, if they feel that the information contained in those answers is worthwhile to everyone, then why not post it for all to benefit? Chances are that if one reader asks a question, many more have the same question – they just don’t bother to submit it “officially” to be answered.
I say keep ‘em coming!
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I don’t like mailbags, carnivals, roundups, etc. I’d rather see fewer posts than read these “fillers.”
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I like it! Great format!
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I have to agree with the above regarding the similarity of this blog to Simple Dollar. I expect by next week JD will have a post on making his own laundry detergent? Both of them even bought new cars with a couple weeks of each other!
In all seriousness, I’ll likely keep reading, but the mailbag will be something I’ll skip.
What happened to the JD that was going to start writing more about “the next stage” like Leslie asked in her question?
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I use Vanguard. I stopped using Fidelity and moved all my money from Fidelity to Vanguard because Fidelity was involved in investing that suppported those causing the genocide in Darfur.
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The mailbag is something that I will read once and a while. In regards to rolling over a 401k I use foliofn @ folioinvesting.com.
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Wow, a critical bunch today!
As far as copying goes – I very much doubt that Trent created the idea of “reader mail bag” posts. I think they are a fun type of post because you never know what will be in the questions/scenarios.
I think with any blog you have to read the posts you like and skip everything else – it’s not like a favorite tv show where you expect to like every episode.
Lastly, people change over time, blogs change over time – that’s just the way it is.
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I opened an IRA with T. Rowe Price because they had pretty low minimum requirements to start and I didn’t have much money to put in it. I thought it was important that I just get it started.
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I’d also like to see more posts by JD and not quite as many guest posts.
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I think plenty of other sites offer the Reader Mailbag and do a great job of it. GRS can come up with something more inventive for a regular topic. Or as an alternative do the mail bag once a month with the most popular type of reader question from that month.
I like the idea of success stories, but I think they don’t have enough meet for me, only fluff. Exactly how people got rich slowly is what I’m interested in. I know the basics, spend less than you earn, but I would like to see numbers and figures behind this.
I love the site and keep up the good work!
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Kevin M (#21) wrote: I have to agree with the above regarding the similarity of this blog to Simple Dollar. I expect by next week JD will have a post on making his own laundry detergent?
Ha!
No danger of that one. There’s nothing wrong with making your own laundry detergent, but it’s just not for me. Though Kris and I live frugal lives, there’s little that we do that I’d consider extreme frugality — and making your own laundry detergent falls into that camp. Again, there’s nothing wrong with doing it, but we choose not to.
I appreciate the feedback on the direction of the site. I actually do feel like I’ve been focusing more on the “next stage” stuff, but maybe I’m wrestling with those questions in my head and less on the public stage here. That’s definitely where my own personal finances are moving, so it’s the stuff I’m interested in writing about. I was just thinking this week that it’s been ages since I did a frugality post. I feel like at one time most of the posts were frugality posts.
It’s also true that the site has had more guest posts lately. That’s something I’ve been wrestling with, too. The basic question is: Do I supply content every day? Or do I only provide content from me? If I only provide content from me, then the posts will appear less frequently. If I provide content every day, then I need to bring in other authors. I’ve actually considered searching for a second writer at GRS to focus on frugality and debt reduction while I continue my journey into new areas of money management.
Anyhow, I appreciate the feedback, and do not disagree with your evaluations. I just wanted to add a little “color” about some of the choices I’ve made.
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I like the idea of a weekly mailbag as well as an ask the readers. Wasn’t GRS just featured in the WSJ as having the best readers? So why not give them a bigger slice of the article pie? Yesterday’s Roth IRA post was the first time I read one of Robert B’s guest posts all the way through.
Gavin, I like both Fidelity and Vanguard. My 401k is with Fidelity and my Roth is with Vanguard.
Kelly, Snowball the debt by paying off the smallest one first. Then apply the full amount you were paying to the next highest. Any “found money” should also go to paying down your debt. Just don’t focus so much on paying off your debt that you forget to have fun once in a while.
Leslie, I’ll second ObliviousInvestor’s (comment #5) recommendations and add http://www.dividendgrowthinvestor.com/
My target date for total debt freedom is May 2012.
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I love the mailbag! Keep it coming.
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I find all the links and graphics on the page really annoying…I like the mailbag idea, but the format on the Simple Dollar is much easier on the eye.
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Online brokers: If the intent is to invest in a “lazy portfolio” type of strategy, one need only look at the account maintenance fees. If the intent is to simplify all financial activities, look at someone like eTrade (where all of my money is), who offers online checking and other services in addition. Your total assets under one roof may also change the fees you pay. For example, at eTrade, having more than $50k in total assets with them means that they don’t charge me for paper statements or IRA maintenance.
Rate chasing: If you’re willing to do the extra work and keep an eye on when promotional rates expire, I don’t see anything wrong with rate chasing. With respect to Ally, I would not put ALL my money there. Keep your emergency fund closer to home (not AT home, mind you) where you can easily get your hands on it should Ally close their doors. FDIC protection does not mean instant access to those funds.
Interest rates: Agree with your comments 100%. The only difference between your savings rate example is if the bank has a sliding scale for rates based on how much you deposit. You may get a better rate for depositing $20k vs. $10k.
Books: I haven’t read his latest, but I find Ray Lucia’s advice to be significantly more advanced than most “gurus” yet it’s easy enough for most people to apply.
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J.D., I also like the Mailbag because it mixes things up but it is a bit confusing to know which reader comments apply to which Mailbag question/response. My suggestion would be to post each question/response separately for easier readability.
Oh, and I would LOVE to write for GRS!!! I am 23 and am really passionate about educating other younger people -students just don’t know how much they don’t know when it comes to personal finance!
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On IRA, I use vanguard (both IRA and after tax investing). It works (minimum 3K opening) and meets my needs, especially since I wanted to buy Vanguard ETFs as part of my after tax investing.
That said, since we have both an account in my wife’s name and one in mine…no way to link them. Not a big deal, but if you were looking to log into vanguard and get your simple net worth calcs…it doesn’t combine. I do that offline so not an issue for me.
On the criticism of post topics – I want to say…write what you want. If I don’t like a post, a simple press of space bar and I’m onto the next article. I personally don’t subscribe to TSD because so many of the posts weren’t relevant…but GRS’s ratio of posts I read and find value over those I skip is much higher. Key to keeping a blog going over time is enjoying the process. Keep up the good work.
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Concerning the question about the 4 loan with the same interest rate and the additional $300. Don’t know if it is the same in US as it is in France, but in general when you lend money in France, the amount of reimbursement per month is split between interest and capital.
At the begining you pay more interest than capital. So if it is working the same way in US I would suggest to use the $300 to reimburse the most recent loan so you avoid paying too much of the interest …
Not sure my explanation are understandable as my english is so poor, but hope it helps anyway.
Kind Regards,
French Reader
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JD, it’s your blog and you can do what you want. If I don’t want to read the guest articles, I just go on to something else. I just like your writing.
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Hi JD,
I like seeing what people ask you by email, but I have to admit I do skip at least half of the guest posts. In general, the writing style of guest posts doesn’t tend to be as engaging as yours. So I’d say: fewer guest posts, yes to mailbag (and whatever the Ask the Readers is- I guess it never stuck out to me! How is mailbag different from Ask the Readers?)
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About paying off loans with the same interest:
@Kelly – it’s true—it doesn’t matter at all which one(s) you pay off first if they all have the same interest rate. So, the best strategy is probably to pay off the smallest one first. (Then add that money that you used to be paying for that loan to the extra $300 and apply that to the next smallest loan.) Then if something goes wrong, you now have the flexibility of making only three minimum payments instead of four. Also, it’s fun watching the number of loans shrinking quickly.
However, there may be other concerns. If one loan payment has to be done by mail, you’ll save stamp money by paying that one off first. If one loan payment is tricky and you’re sometimes late on that one and have to pay a fee, you might want to pay that one off first. If one of the companies is particularly slimy or in any other way especially stressful, pay that one off first: You’ll be done with them quicker and they’ll get the minimum interest possible given what you can afford.
@Aaron – the effect of paying off smaller loans is not at all “less pronounced” than that of paying off larger loans. In each case you are reducing the principal by $300.
@kaloooni – Interest is calculated the same here as in France. It’s true that the bigger loans have more interest, but you are paying all of that with your minimum payment. All of the extra $300 will go to principal. The overall interest for the following month will be reduced by the same amount regardless of which account it is applied to.
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I personally prefer to only read really good posts, even if they’re less frequent. I have a limited amount of time and energy to devote to discovering interesting things to read online, and I’ve removed sites from my RSS reader in the past when I found myself looking at unappealing headlines and immediately marking them as read more often than I actually read anything at the site. Sure, most of these sites still post something I find interesting once in a while, but if they bury it in enough clutter, I’ll eventually just go somewhere else.
But for what it’s worth, I prefer the mailbag to the ‘ask the readers’ format. Every post with comments enabled (which is all of them) is implicitly an ‘ask the readers’ post. And I wouldn’t consider answering reader questions to be stealing another blogger’s idea, it’s been a pretty well established format for advice columns in newspapers for decades.
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@Gavin: I’ve been with TD-Waterhouse, now TD Ameritrade for 4yrs and am happy. Have heard good things about Vanguard as well, and if you plan to buy mostly Vanguard funds (which is what I do), then consider them as well.
@Kelly: Pay them off smallest to largest, aka Dave Ramsey Debt Snowball…I recommend this even if interest rates on larger notes was higher than your lowest debt…there’s a big psychological benefit in doing this, as you get to see yourself making progress.
@Leslie: I haven’t found one yet either, however I do really like the forums at Bogleheads.org, and they have a great wiki as well. Clearly this is slanted toward the methods advocated by Jack Bogle. Some of the posters there have been there for years, have great wisdom to share, and occasionally Jack Bogle himself posts in the forums. Next on my list to read are : “The Four Pillars of Investing” and “The Bogleheads Guide to Investing”
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I love the idea of the Mailbag and Ask The Readers! It gives a chance to have more questions answered. ^_^
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After using both Fidelity and Vanguard for my work 401k accounts, I 100% prefer Vanguard over Fidelity. From their user interface to their offered investments, they just beat Fidelity hands down. I’m looking now to roll my Fidelity 401k over to a Roth IRA in Vanguard. For personal brokerage, I use Scottrade and have no complaints, but no raving reviews either.
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I like the mailbag, but I would not want to see it replace “Ask the Readers.” I like the idea to have one in the a.m. and the other in the p.m. or the alternating week format someone suggested.
@Gavin – We’ve been with Vanguard for years and are very happy with their products, service, and their web site.
@David – We opened an account with ING last year after reading about them here, and although I am disappointed that their rates keep falling frequently, I am happy with their website. I like to keep things simple so I hate the thought of opening another account and leaving the ING account hanging out there or having to close it. If I knew I only had to do it once, it would be one thing, but in a few months rates will be higher somewhere else, and the process will have to be repeated.
@Kelly – I would pay off the lowest balance first. You will have one less thing to worry about, and you will get a boost from seeing that bill disappear even if right now you think it won’t matter to you. Even if each company has a slightly different way of calculating their interest that results in one company charging slightly more interest than the others, the difference would be so small it wouldn’t be worth the time to figure it out IMO.
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Hey JD, I’m the Amanda who was featured in an Ask The Readers about taking on large amounts of debt before my husband started dental school. I have been meaning to send you an update for a while now, so perhaps I should get around to that!
I think the ask the readers articles are great. You get a wide variety of perspectives and thoughts from all across the world. My husband and I had so much fun reading the comments to each other and then discussing with each other what we did and didn’t agree with.
My point is, in my opinion, don’t eliminate the ask the readers. There are a lot of good questions out there, and a lot of good readers who give great advice.
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Thanks to J.D. and to everyone else for their responses to my request for ‘next stage’ book and blog suggestions…it is much appreciated! I will check out all the recommended blogs and have already put a number of the book titles on hold at the local library. I look forward to the summer reading!
Cheers and thanks again~
Leslie
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Kelly wants to pay least amount of interest over time. The first consideration is the interest rate, but since they are all the same that doesn’t help. There are two other factors to consider:
#1) Are any of the loans tax deductable such as student loans or mortgage loans? If so pay off non-deductable loans first.
Did you use Turbo Tax or Tax Cut to do your taxes this year? If so check to see if you entered interest payments for any of these loans. Try temporarily changing that number to 0 and see if your tax bill changes.
#2) Do any of the loans have bad early payment policies? Don’t make extra payments for any loans that have pre-payment penalties!
#3) Are any of the terms different? It sounds like they are all 197 payments left, but if they aren’t you should pay more to the loan with the longest term first.
Leslie, I really enjoy the following blogs on investing: http://www.obliviousinvestor.com/ http://www.behaviorgap.com/
If you want a great podcast on wealth management check out: http://www.money-guy.com/
-Rick Francis
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@Gavin – I work for a pension and investment records company, and we use Charles Schwab’s services for almost all our clients, I recommend them highly. I absolutely do not recommend Fidelity.
@JD – I always enjoy seeing reader mail and your insightful answer. Both the mailbag and ask the readers sound good if it doesn’t cut too much into your regular articles, which are great.
I haven’t hit the financial success area yet, but I feel like I’m closing in. Yesterday I got a credit card through my credit union and when the representative saw my credit score he gave me a high five. It was silly, but still enjoyable to see someone get that excited over it.
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Please add me to the group of voices who are in favor of both a mailbag and an ask-the-readers feature. On the other hand, I also tend to agree that the number of guest posts recently has caused me to skip more columns than I used to. I tend to prefer the idea of finding a single writer whose writing informs and complements the current GRS style. If you find a few promising finalists, it might even be fun to let the readers vote (especially if you pick a young writer as more of an “intern” than a “partner”).
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Kelly: I think this might be really obvious, but in case you haven’t thought of it, I’ll bring it up. Do any of your debts compound interest? Having credit card debt is more expensive than car loans or student loans in my experience, because the latter two just do simple interest.
If any of them do, you might consider paying those off first.
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I suggest ShareBuilder for small-ball starting investments and Vanguard once you break the $10k necessary for their standard accounts. It’s an all Vanguard show past $10k; I don’t really know anyone else that will handle your money better. (Note this is $10k per account, not total.) Getting there is the hard part, which is why I recommend Sharebuilder.
The fees are $4 per product buy. (Mutual funds are available for free, but I despise most mutual funds. With that being said, the ING REIT mutual fund is part of my rollover portfolio and has performed very well the last year.) Minimum buy amount is $100 per product. Obviously, 2.5% is a fairly ridiculous fee, so the trick is to be patient and buy in bulk. For example, I wait until I have $1000, then purchase my shares according to my investment plan. My Roth IRA has four products in in (all EFT indexes), so I end up spending about 0.4% a product, which seems quite reasonable to me.
The other hangup is Sharebuilder’s interface, which obfuscates your ability to purchase in a manner I can only assume is intentional. It will seem, at first, that you have to buy your products at the same time you transfer your money over. You don’t. The trick is to set up recurring deposits to your money market account, then automate your investment plan to invest when your money market account tops a certain level ($1000, in my case).
The sell fee on a non-mutual fund (even EFTs) is a flat $20, however, so you won’t want to rebalance if you can help it. Try to pick a portfolio strategy which doesn’t require it, or—if you’re a math geek like me—just change your next automatic investment to build rebalancing in.
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