Student loans: Pay them off, or invest elsewhere?

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
 1.  Student loans, repayments, and rates
 2. Finding cheap Kindle books
 3. Incompetent landlord issues
 4. Eliminating fast food
 5. Health insurance for newborn
 6. Waiting for divorce
 7. Changing spousal money habits
 8. Egg cartons
 9. IRAs and tax rates
 10. Home repair dilemma

Most weekdays, I go for a long walk around the neighborhood where I live. I usually do it to work through ideas, improve my physical shape a bit, and get a bit of fresh air.

Anyway, if you walk the same area enough, you begin to notice patterns, such as when people are typically home and what vehicles to notice in people’s driveways and the like.

Whenever I see a vehicle that isn’t familiar, I often wonder whether or not I should say anything to anyone. Should I stop by their house later and let them know? Should I call the police? Or should I just ignore it?

Unless I see something really out of place, I typically ignore it, but the thought of the out-of-place vehicle often sticks in my head.

Q1: Loans, repayments, and rates
 I have two student loans. I have about $15000 in federal loans which are at a fixed rate of 3.375. I have $13000 in private loans at a variable rate, which has been 2.5% ever since interest rates dropped to their historic lows. The loan at the variable rate was at one point as high as 8.5%.

Currently I am not paying anything beyond the minimum monthly payments for each figuring that I can get a better return on my money elsewhere. Do you agree with this logic? If so, at what point do you think I should start throwing extra money toward these loans? I had reckoned somewhere between four and five percent but am curious to hear your thoughts.
 - Jeff

Right now, there isn’t an investment where you can get a guaranteed return of 3.375%. When interest rates shift, there will be such opportunities. Of course, there are opportunties that one can reasonably expect to get that return, but they involve risk, meaning you’re not going to necessarily get that return over a given period of time.

In other words, unless you’re investing for something way down the road, like retirement, or you don’t have a decent emergency fund, you might as well pay down this debt.

It is never a bad choice to eliminate debt, even at 0%. If nothing else, it minimizes your monthly bills, which makes it easier to survive job losses and other unexpected events.

Q2: Finding cheap Kindle books
 You’ve mentioned before how you view your Kindle as a money saver, but I just don’t get it. All of the books on there seem really expensive to me. Where do you find cheap books?
 - Joan

I keep an eye on the Kindle Daily Deal and the monthly Kindle discount list, for starters.

I read a lot of public domain books, though, which you can download for free at Project Gutenberg. I use it to read philosophy and classic novels.

Between those two sources, there’s a ton to read. If you must read the latest releases, use your public library and use their reservation system.

Q3: Incompetent landlord issues
 My problem is that I have the landlord for H-E-Double hockey sticks. I have lived in my apartment for 3 years and only started experiencing problems around the 2 and a half year mark. My landlord frequently doesn’t cash my rent checks (I have about $4,200 in my bank account right now from 4 months worth of rent she hasn’t cashed). I started sending out the rent check via my bank (through the “Pay Bills” section) so that I have a record of payment. I have contacted her in the past about this and her explanation was that “the secretary was out sick”. The only problem is…She doesn’t have a secretary…The other issue is that I’m not technically on a lease. According to her, she never received my lease renewal and when I asked her to send me a new one – she never did.

So what should I do? This woman is old (maybe mid-60s) and I live in a large building so sometimes I wonder if she just gets overwhelmed. My lease expires in 4 months and am I DEFINITELY planning on moving but what should I do with that rent money? I realize that it’s rent and should be paid to her but she isn’t cashing the check.
 - Shaun

I’d get out of this apartment, of course, but I really wouldn’t sweat the missed checks. Just make sure that you’re leaving enough in your checking to cover the uncashed checks.

You might want to call your bank and ask about their policy on stale checks. Many banks don’t accept checks that are older than six months as a policy (though they often slip through).

For now, though, make sure you can cover every single check you’ve written. It might be annoying, but it’s the safe route.

Q4: Eliminating fast food
 I finally get it: fast food isn’t as cheap as I thought it was. I spent some time tallying my overall spending and it would actually be cheaper for me to go to a decent restaurant and take a doggie bag than it is to eat fast food, and making meals at home is cheaper than that!

The problem is that the convenience of fast food is just such a part of my life. Between grabbing kids from school activities and dropping them off places, keeping up with my meetings and other things, and my crazy job, most days fast food is just what I rely on to make it work. I grab some food and eat in the car on my way to my next thing.

My life is just incompatible with sitting down for a normal meal at the dinner table. I don’t see how I can trim money from my food budget and retain any level of convenience.
 - Alvin

My suggestion to you would be to make meals at home and pack a small cooler or something with plenty of food for lunch, dinner, and any snacks you might consume. Put an ice pack in there so that the food stays cool.

I’ve done this many times on busy weeknights. I’ll eat a sandwich and a side I’ve made myself for the fraction of the cost of eating a fast food meal and without the ten minutes burnt in the drive-thru.

There’s a lot of variety in this as well. Given that you’re not wasting time in a drive-thru, you can pack meals that don’t have to be eaten while driving, and if you have access to a microwave at work, you can cook it just before you leave. It really works, both in terms of delicious food and financial savings.

Q5: Health insurance for newborn
 My wife and I are expecting a baby in September and we are trying to determine whose health insurance we should insure the baby under once it arrives. My wife has traditional open access healthcare (pay co-pays, etc. but everything else is covered). I have high-deductible health insurance with an HSA. We intend to remain on our separate health insurance plans because her employer pays 100% of her premiums (for her only) and my employer pays a portion of my HSA contributions. We don’t want to miss out on this free money (untaxed, not part of income, no way to receive it unless enrolled in the healthcare plan). Her premiums will increase $320 per month to add the child. My premiums would only increase $69 per month. However, with the HSA, you know that I pay 100% of everything out of pocket up to deductible then I would be co-insuring (10% in my case) everything after that.

I’ve determined that to compare apples-to-apples, I would increase my cash out of pocket HSA contribution to $251 per month so that my premiums and HSA in total are $320. This would mean that cash out on a monthly basis I am neutral between both options. That said my employer will kick in $108 additional to my HSA. Therefore, assuming the facts above, I would be contributing $359 to my HSA monthly, $4,308 annually.

That said, my deductible would be $6,150 and my annual co-insurance maximum would be $4,000. My total maximum annual out-of-pocket would be $10,150.

The dilemma is this, which plan do we insure our child under? If the child is healthy, the HSA seems to make plenty of sense because I can’t imagine spending more than $4,300 even in the first year on the healthcare for the child. My wife and I are healthy so we won’t use much of the HSA money on ourselves. The obvious concern is that an accident could happen at any time which would mean we could max out the $10k in one year. However, I have emergency fund money to cover that and I am risking that whether the child is on the HSA or not because I am on it. The real unknown is whether the child will be healthy. We don’t have a family history of anything but I worry that the child could have some medical complications and that would get expensive quickly.

Can you advise me on what to do here? Also, we would be free to change during the open enrollment periods each year. This enables us to change our mind down the road so really the first year is what is in question here.
 - Roger

I would only go for the cheap option if I had an enormous emergency fund sitting there to cover situations that the cheaper insurance leaves up to you. In other words, I’d want to keep an emergency fund that covers the whole deductible and a few months of living expenses.

If you don’t have that, I would go for the more expensive insurance. This is about keeping your child safe, and that’s paramount.

It might be tempting to think you’ll be able to save enough to get there in a few months, but that’s the very point of insurance. Insurance is supposed to cover you in situations where you cannot, and if you can’t cover an unexpected expense and have access to decent insurance, get that insurance.

Q6: Waiting for divorce
 My husband and I have mutually decided that we don’t love each other any more. We do love our children and have decided to continue to live together for their sake. We don’t hate each other, we just realize we don’t really love each other.

How do we go about separating our assets in a reasonable manner?
 - Connie

It sounds like you have time to do this and mutual respect during this process, both of which are invaluable.

If I were you, the first step I’d take is to start separating all accounts. You should each have checking accounts, credit card accounts, and so on that are independent of the other. You should each own your own vehicle without the other on the title.

As for large assets like your home or other investments, talk about it together and determine what creates the best outcome for everyone involved. I can’t give you the answer to this, but I would suggest taking your time, talking about it together, and seeing if there is a good way of resolving such big issues without involving lawyers (who will eat up a lot of the value of the disagreement, anyway).

Q7: Changing spousal money habits
 Here is my question – can you give some practical tips and suggestions for helping your spouse to change their money-spending ways as well as ways to encourage them to make and follow a budget? Our situation is this: I am a stay-at-home mom of two and my husband is the sole provider, bringing in around $2,800/month plus some additional benefits like a gas card, computer, business allowances, commissions, etc. We also have a rental property that brings in about $1,400/month.

My point in telling you all of this is that we make decent money and yet every single month we are scraping by. I feel that a lot (but of course not all) of it has to do with my husband’s spending habits (eating out, promising to not spend then doing it anyway) as well as his ability to coerce me into agreeing to purchase things (aka, the $200 above ground pool sitting in our backyard purchased last week) that I know we can’t afford it, since I am “in charge” of paying the bills each month. He will tell me, “Don’t worry, I’ll get the money…,” yet he’s always a day late and a dollar short, which has caused us to sink into some major debt. It hurts even more on a personal level because most of our bills and loans (minus his student loan) are in my name, because when we were first married, his credit was bad and was unable to qualify for anything. My credit has suffered SO much and I am desperate to fix it.

I do my part by shopping frugally, couponing, not really buying anything for myself, etc. I’m sure there are other areas I can cut and he certainly isn’t completely to blame, but I feel like I’m making an effort to pull my own weight. Slowly, we are creeping our way out of credit card debt, but we still have approximately $3,000 (out of $8,000) left, a car payment, and student loans on top of about $12,000 in collections for a hospital bill. I’m tired of nagging him, especially because I feel guilty for nagging him about money he is earning, yet I am SICK of being stressed out constantly, especially when bills are due. I need help convincing him that we need to reform our money-spending ways, work on a budget and then actually stick to it!
 - Catelyn

You can lead a horse to water, but you can’t make him drink.

Your best approach isn’t to feed him with tactics. If he doesn’t care, he’s not going to use them. He’s got to have a real reason for wanting to change, so that’s what you need to focus on.

Talk about long-term goals with him. What does he want to be doing in a few years? What’s possible if he makes changes? What will things look like without changes?

You’ve got to put the changes you want him to make into a context that he cares about. If he doesn’t internally care about changing, it’s just not going to happen.

Q8: Egg cartons
 For the last few months, I’ve been on a diet where I eat three eggs for breakfast each morning. This means that every four days, I go through a carton of eggs. As I keep tossing them, I can’t help but wonder if there isn’t a great use for them I’m not seeing.
 - Brad

We like to use egg cartons – the paper-based ones, anyway – as firestarters. It’s actually pretty easy.

All you need to do is get ahold of or save the stubs of candles as well as some sawdust (friends who do woodworking will be glad to hook you up; if you don’t have those, see if hardware stores have any suggestions). Just fill up each well with some sawdust until it’s mostly full, then melt some candle wax on top of it, filling up the well and holding the sawdust in place.

Take the carton with you if you go camping or build a bonfire. Tear off one or two of the wells and light those to get the fire going. It works really, really well. If you aren’t into camping, give them to friends who are into it – they’ll really appreciate it.

Q9: IRAs and tax rates
 One thing’s been bugging me lately, as I sock away more and more money into a Roth IRA and Roth 401(k). By the time I hit retirement, if 100% of my retirement income is in post-tax accounts, my taxable income should be zero. If that’s the case, should I be saving significantly more into a pre-tax accounts, like IRAs and standard 401(k)s?

It seems that, in combination with that, if my retirement income is substantially less than my employed income (since I’m saving 20% or so right now), a standard IRA becomes a better investment since I ought to be at much lower tax rate than I currently am while employed.
 - Charlie

If you use pre-tax investments for retirement, like a 401(k), you reduce your taxes now in exchange for paying income taxes later. If you use post-tax investments for retirement, like a Roth IRA, you don’t lower your taxes now, but you certainly lower them later on.

Which is better? It really comes down to whether your income tax will be higher now or in retirement. Much of that has to do with government policy over the next three or four decades, which is really hard to predict.

Our approach to this problem is to hedge our bets. We have some of our retirement savings in pre-tax investments and the rest in post-tax investments. Our taxes are a bit lower now – but they’re also going to be lower in retirement.

Q10: Home repair dilemma
 I am 40 years old and single. I am currently employed in a good-paying job and have been employed with the same company for almost 18 years. My company is currently being sold and my future is somewhat uncertain (whose isn’t really?). I currently make about 4k a month in gross pay with occasional bonuses. I have about 27k in liquidity and about 250k in a 401k which I contribute to at the maximum rate and about 30k in an IRA. I also have about 100k in a pension that I will be able to roll into my IRA once the sale of my company closes. I also have a second vehicle that is worth about 10k that I would like to keep for recreational purposes since it’s a 4wd and it is paid for but would sell if needed. My only debt is a newer car with better gas mileage at 2% interest rate with payments at $350/month and my mortgage which is at 3.75% and is at $622/month. I have about 50% equity in my home. I purchased my home 10 years ago and the age of the roof at that time was 15 years so my roof is 25 years old and is showing signs of break down. A few years ago I had a rough estimate of about 8k to replace my roof and a friend just told me about someone that does re-roofs at a really good price and I just got that estimate at $4800 which I think is really good. My concern is that with the new ownership of my company that I could find myself in a position of being surplused and unemployed. So, I’m at a loss as to what to do with my roof. It needs replaced but I have recently started cutting out all unnecessary expenses anticipating the worst. But, I know I’m destined for roof failure at some point in the near future. Would you replace the roof now while employed or wait until there are roof leaks (my home is an older home that I have done quite a bit of upgrading to but does have plaster ceilings that I’d like to replace at some point but not until I have a new roof, so ceiling damage is not of much concern given the condition of the plaster). My mother says wait but I am thinking I should go ahead and replace. What would you do?
 - Angela

The key is to make sure your roof doesn’t fail before your career is on steady ground. If I were in your shoes, I would look for a “patch it up” solution that would give you a few more years out of this roof until you’re in a better situation to replace it.

Are there any known leaks? Are there any weak spots that can be identified? I’m far from a roofing expert, but if you have someone that knows roofing and you trust this person, talk to that person about solutions that can buy you a little time.

If you’re up to it, many such repairs can be done yourself. Here’s a solid guide to minor roof repairs that can help you get through until things are in better shape professionally for you.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.