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Marketplace Morning Report

Mailbag for Friday, April 13, 2007

Marketplace Staff Apr 13, 2007
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TESS VIGELAND:
I’m Tess Vigeland. And here we are again, it’s Mailbag time. Chris Farrell is here. Hi, Chris.

CHRIS FARRELL: Hi. How are you doing?

VIGELAND:
I’m doing great. And Chris, of course, is our economics editor and knower of all things money related. Before we get into answering your questions, take down our Web site address, it’s Marketplace.org, click on the contact button or you can give us a call with your questions. We’re at 877-275-6669. That’s 1-877-ASK-MONY. And we’ve got Janet on phone from Tulsa, Oklahoma. Hi, Janet.

JANET:
Hi, Tess.

VIGELAND:
I understand that you are a two-time winner in the Marketplace Money call-in sweepstakes. You talked to Chris about 10 years ago. What were you talking about then?

JANET:
Yes. Chris had that – Chris’s guest was a real estate adviser from Florida and I called with a silly question about how will I talk, could talk my husband into building a home. But I finally did convince him and we built a house in 2001. And I enjoyed it as much as I thought I would and he enjoyed it so much more.

VIGELAND:
All right. Well, welcome to the program once again.

JANET:
Thank you.

VIGELAND:
And what’s your question for Chris this time, 10 years on?

JANET:
Well, I won’t tell my age, but I will tell you that my first college hours were like $3 a credit hour and . . .

VIGELAND:
Wow.

JANET:
But my real question is my sixth of seven grandchildren has applied to both of our excellent four-year universities.

VIGELAND:
They’re in Oklahoma?

JANET:
In Oklahoma. He has good grades. He’s a good student. He’ll get in. However, our local community college has offered any Tulsa County 2007 graduate free tuition.

VIGELAND:
Wow.
JANET:
How do I sell that idea to him?

VIGELAND:
So it’s, so it’s either, you know, free community college or pay for a state university?

JANET:
It’s like, it’d be like turning down a $13,000 to $20,000 check.
VIGELAND:
Yeah. Boy, that’s a tough one.

FARRELL:
Yeah.

VIGELAND:
What do you think, Chris?

FARRELL:
Just as a general statement, there is a movement and it’s a very savvy financial movement, a young person goes to community college for two years and then they transfer to four-year college and then they graduate with a diploma from that four-year college but they paid a lot less. And so essentially, this is the strategy that you’re pursuing except for it’s even more favorable because it would be free, the community college portion of this. So from a financial point of view is extremely savvy. As a general statement for a lot of parents that are listening to this conversation, it’s a very smart thing to think about for your youngster. That’s the financial side of things.

FARRELL:
There’s a couple of other things to consider, how important is it to your grandson and to his parents and to you that he have a four-year experience? Part of going to university for some people, and particularly if there are public university if you’re gonna stay in the state is that you meet people that you don’t know how that’s going to evolve over a period of time. But there is a connection with people within the university, within the community, that is not as powerful if you go the financially savvy route.

JANET:
Very good point.

VIGELAND:
You think he’ll be able to maybe convince them that this might be at least an option?

JANET:
An option, but probably a less desirable one.

FARRELL:
Can I toss one other idea, Tess?

VIGELAND:
Of course.

FARRELL:
Well, if he chooses to go to the four-year, you may want him to absorb more that cost.

JANET:
I think he’s going to have lots of school loans and his parents will expect him to pick those up.

FARRELL:
Then I think I would encourage him, lay out the strategy, but if he’s gonna be owning the cost of that education in taking responsibility for it, then I would go with which ever way he wants to go.

VIGELAND:
And either way, he can root for the sooners.

JANET:
You bet.

FARRELL:
Oh, yeah.

VIGELAND:
All right. Janet, thanks so much for the call.

JANET:
Bye.

VIGELAND:
All right. Let’s reach in to the e-mail bag. We’ve got Peter writing in from La Mesa, Calif. And last year, he worked for a small architectural company that’s now going out of business. Sorry to hear that. He’s been trying to get his 1099 from them for the last three months, but it doesn’t look like he’s gonna be getting the form. So he doesn’t have all his pay stubs, so he’s wondering what to do about their taxes because he has no actual documentation of this income. How does he deal with the IRS here?

FARRELL:
Well, this is not an uncommon problem. So much so that the IRS even has a little form that you fill out under these circumstances. Assuming that he’s not going to get it in time to fill out his taxes, there’s a form that he’ll wanna fill out, a form 4852. I have found it easier just to go Google or whichever search engine you use and then you type in 1099 and actually one of your first, one of two choices will be the IRS Web site and go right to where you need to be. Click on it and you can just print out the forms right then and there.

VIGELAND:
Not, not too tough. Well, we are not the IRS, so there’s no fear in asking us anything. Click on the contact button on our Web site, it’s marketplace.org or call us at 877-275-6669. That’s 877-ASK-MONY. And let’s go to caller number two. We’ve got Victoria on the line from Brentwood, New Hampshire. Hi, Victoria.

VICTORIA:
Hi, Tess. Thank you so much for taking my call.

VIGELAND:
Oh, you’re most welcome. I understand you’re in the fashion business.

VICTORIA:
I am. I design a line of sweaters.

VIGELAND:
A line of sweaters. Well, I suppose that’s appropriate for New Hampshire, huh?

VICTORIA:
Yes, although, they’re not typical New Hampshire sweaters.

VIGELAND:
What do they look like?

VICTORIA:
You know, it’s very hard for me to describe the kind of sweater because they vary. In the spring, sometimes a little see-through pull-ons. In the winter, they could be turtlenecks. It’s not like I do a whole line, I just do items.

VIGELAND:
And are you still working full-time?

VICTORIA:
I’m working part-time, Tess, and I’ll tell you I’m self-employed. I have no pension, no inheritance, no trust fund and no endowment. But shortly, I’ll be coming into $1.5 million.

VIGELAND:
From sweaters?

VICTORIA
No. Are you kidding? Sweaters have never paid that much money. With sweaters, I just made enough money to have a little fun and pay all the bills and that was it.

FARRELL:
Yeah. I was gonna say otherwise the advice would be, you know, tell your children to sell sweaters.

VICTORIA:
Then go into the sweater business.

VIGELAND:
Exactly. So where is the 1.5 million coming from?

VICTORI:A
Well, I had a lot of land, which I had created a subdivision and sold it and that has to do me for my old age. And so the decisions I make about how to place it are crucial.

VIGELAND:
Wow. And so, Chris, certainly, $1.5 million sounds like a whole lot of money, but in the grand scheme of things, unfortunately, it’s not.

FARRELL:
No. And I would imagine a lot of people are giving you advice, why don’t you buy this or why don’t you buy that?

VICTORIA:
Oh, absolutely.

FARRELL:
Okay. This is the Chris Farrell program for not being taken to the cleaners.

VICTORIA:
That’s exactly what I need.

FARRELL:
And the first thing is it may take you three years to decide what to with this money and that’s perfectly fine. There is nothing wrong with that. What I would recommend is putting the money into the U.S. treasury bills. You don’t have to worry about credit risk. You don’t have to worry about the risk of inflation, because if inflation goes up, then the interest rate on U.S. treasury bills will go up, and as the money rolls over. So you’ll stay either with inflation which is another way of saying if it takes you three to four years to decide what to do with the money, what’s worth $1.5 million today will still be worth $1.5 million three or four years from now, because what you really wanna do, you wanna preserve that principal and make a little bit of interest just to protect you against inflation.

FARRELL:
And you don’t wanna take any credit risk while you’re deciding what to do. Some of the products people are approaching you with may be right thing What I would do is, partly what you’re just doing right now, talking to people. I think it does make sense to hire a . . . certified financial planner to do a blueprint, not to manage your money, but essentially to come up with a blueprint in what are the various tradeoffs, what are the various options that you can pursue.

VIGELAND:
But Chris, as she’s getting this money, can we at least give her some sort of notion of where to park it, in the first place. And also, let’s talk about some of the tax consequences of this. Because, certainly, Uncle Sam is gonna want his chunk of this money.

FARRELL:
Yes, he does. Well, that means the parquet would be in treasured bills because that’s the most concern or option that you have. You can pay taxes on it, absolutely. That’s true.

VICTORIA:
So a certified financial planner was someone that I’d make an appointment, go and see and get their advice on what could happen. And then, can I go to two or three? I mean, I really like doing the research. I like to be involved, and I’m a hands-on person.

FARRELL:
Absolutely. When you pick a certified financial planner, the reason I like that designation, it says they’re educated. And what you would do is interview five or six. And you’re talking about something very intimate. And it’s just like with a doctor. There’s gonna be one of them that you’re gonna respond to. You got $1.5 million. It’s worth that fee.

VICTORIA:
I agree.

VIGELAND:
All right. Victoria, well, thank you so much for the call and best of luck with the planning for this large amount of money that you’re gonna come into.

VICTORIA:
And thank you very much. I really appreciate your help.

VIGELAND:
You’re most welcome. Thanks for the call.

VICTORIA:
Bye-bye.

VIGELAND:
Well, fashion can so be fickle. It just changes with the seasons and . . .

FARRELL:
I know. It’s been bothering me.

VIGELAND:
Such a dilemma. But one thing that won’t ever change is our desire to help you with all your financial problems. Give us a call. It’s 877-275-6669. That’s 877-ASK-MONY. Or visit our website. We’re at Marketplace.org. This is Marketplace Money from American Public Media. All right. One more reach into the e-mail bag, Chris. We’ve got Drew from Fort Lauderdale, Florida. And he and his wife are carrying a significant amount of credit card debt. $65,000. And it spread across a few cards. Now, Drew says they are making the payments okay, but they don’t have much left over after they make those payments.

VIGELAND:
They’ve tried to do the, well, switching of balances, you know, to a new card with, may be a better interest rate. But they haven’t been able to get the principal to shrink very much at all. So he’s wondering what the implication of credit consolidation would be. They’d look into it a little bit. They’re curious about a plan that kind of promises to pay off the loans in about four years. But here’s the kicker. They’re hoping to buy a home in five to six years. So this is a pretty sticky situation. What’s your advice in terms of debt consolidation?

FARRELL:
Okay. There’s a couple of things going on here. Now, the first thing is there can be these, sort of, debt consolidation loans, which I’m not a big fan of. It’s kind of a scam market, but they are legitimate. I mean, you can go down to your local bank, and there are also debt consolidation loans. Yes, you’re getting the convenience of writing one check, but in, in return for getting that, that extra convenience, oftentimes, there are higher fees rolled in to it, and actually the loans ends up being more expensive. So before you do the debt consolidation loan or loan consolidation, really check and make sure that you’re gonna come out ahead, what’s the cost, versus what you’re doing already. And the next level is do you wanna go to a credit counseling service and get into one of their debt management plans.

VIGELAND:
And it sounds like, at least reading between the lines here in this e-mail, that they’re really only making minimum payments on these credit cards. In which case, they’re never gonna get out of this hole without help.

FARRELL:
No, that’s the lure of going to credit counseling service, is that they’re going to help you. With $65,000, I’m incredibly weary of a plan that’s gonna tell you they’re gonna pay it off in four years. I’m a big fan of the Consumer Credit Counseling Services around the country, CCC. The office is very in their quality. But if you wanna check them out online, one of them to look at is the Consumer Credit Counseling Services, San Francisco. And you can do a lot of research right there. There is no magic bullet in any of these consolidation services. What there is, is some discipline. You’re gonna be managing your debt better, but it does take time. And in the end, you’re gonna end up having to cut back on your spending.

VIGELAND:
And in terms of being able to buy a home in five to six years, that goes on your credit report, does it not?

FARRELL:
Well, it’s not gonna have that big an impact, frankly. You get rid of $65,000 worth of debt and, in four year, four or five years, and then a mortgage lender’s looking at you, and you’re pretty credit worthy. If you don’t pay it off, you’re not gonna buy – no one’s gonna lend you the money to buy a home anyway. So I don’t, I think that’s sort of a red herring. If you really wanna buy a home, what we’re really talking about is getting your balance sheet in good shape. And if that takes you four or five years, that’s fine. If your balance sheet’s in good shape, you’re gonna be able to buy a home. That’s really the key.

VIGELAND:
All right. Drew, well, straight from the horse’s mouth, you’ve got Chris’ advice. Best of luck to you. Unfortunately, that’s all the questions we can take on this week’s show. But please do leave your question for our future program on our voicemail. It’s 877-275-6669. That’s 877-ASK-MONY. Or visit our contact page on our Web site. It’s Marketplace.org. Thanks so much, Chris.

FARRELL:
Thanks a lot, Tess.

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