Best of blog posts for week of October 30th

Bad Money Advice gives their opinion on Why College Keeps Getting More Expensive
I agree with his take on it.

The post Are Pre-Nuptial Agreements For Everyone? at Get Rich Slowly drew some very polarized opinions in the comments. Seems that some people think that if you do or don't have a prenup then either you're a moron or unfit for marriage.

Please don't join the "Debtor's Revolt"

The woman who put out the "Debtor's Revolt" video on Youtube was on Suze Orman this weekend. I urge you not to jump on her bandwagon.

If you have credit card debt and the bank jacks up your interest rate then shop around and get youself another credit card. There is no need to stop making your payments and trash your own credit out of a desire to make some sort of statement. The best way to fight the bank is to simply take your business else where.

Your primary goal should be paying off your debt. If you don't have credit card debt then the bank has no power over you. Its only if you are carrying debt you can't pay off that you'll have a problem if the bank raises the rates. So to avoid the situation entirely you should focus first on paying off your debts.

Getting mad at a bank our upset at over the way they treat you is not a good reason to do something in haste that will just trash your own credit. That will just make your own situation worse. Now you've got debt and bad credit. That bad credit will likely cost you quite a bit in the long run. Next time you want to borrow for any reason you'll pay higher interest. Your insurance rates may go up. It might be harder to find an apartment or even land a job.

If your credit card interest rates are raised arbitrarily then I understand if you get angry and want to make a statement out of principle. But you don't have to trash your own credit and default on your debt responsibility to make a statement. Taking your business elsewhere will have an impact. If everyone stopped doing business with a bank then that would kill them as surely as anything.

New Car Deal : Should You take Cash Rebate or Low Interest Financing?

If you pay attention to new car advertising when they offer buyer incentives they are usually offering a cash rebate or low interest financing. So you can either get $2000 cash back -OR- you can get 0% interest on a 36 month loan. The key word in that sentence is OR because it means you're choosing between two incentives. To know which one is better you first should shop around and see what kind of interest you can get otherwise and then compare the two choices with an online calculator.

Bankrate has a calculator to compare low interest loan versus a cash rebate.

Lets look at a couple examples.

0% for 36 months OR $2000 cash

Right now Ford is offering a 0% loan for 36 months -OR- a $2000 rebate on a F150 truck. Lets say the truck costs $25,000 total new and the best interest you can get on a loan otherwise is 7%. If you plug all those numbers into the bankrate calculator they say that "You would save $625 by taking the lower interest rate." So you should take the 0% loan instead. You'll save more in interest than you'd save with the $2,000 on a 7% loan.

0% for 60 months and $750 cash OR $2000 cash

Nissan is offering a deal where you can get a Nissan Sentra with either 0% financing for up to 60 months and $750 cash back -OR- you can get $2000 cash back. To evaluate this deal you can first figure that either deal will get you $750 cash back. So the difference is 0% financing or $1250 cash. Take the price of the car and subtract the $750 and then compare the difference between the other two features. If we assume that the Nissan Sentra will cost $20,000 then you figure the price based on that amount less $750 or $19,250. If we use the calculator and compare a 4 year loan at 0% with the price of $19250 versus taking the rebate of $1250 and financing at 7% then the calculator says: "You would save $1445 by taking the lower interest rate." So again the cheap financing is a better option.

If you can get a good loan the rebate might be better

If you can get a really good loan on your own then a 0% loan isn't as beneficial. Lets look at both those examples again and see how they compare if you can get a good finance rate at your bank. Lets say that you can get a 4% loan from your credit union. If you run the numbers again then you find that for the Ford F150 you save $500 with the rebate but for the Nissan Sentra you save $290 with the lower interest.

I don't know of any easy rules of thumb to compare low interest financing versus cash rebate deals. The best way to compare the two is to use an online calculator.

Personally I think buying a newer used car is your best option financially. But many people like new cars based on their reliability and there might be some very good deals out there nowadays on new cars. And there may be certain situations where buying is more compelling like when you get a tax credit for buying a hybrid.

Wamu Loaned Money to OJ Simpson and other news

Here are some misc. news items I've seen recently that I thought were of note:

Not a good loan

You may recall that Washington Mutual (Wamu) went under and their assets were acquired by JP Morgan Chase bank. The Seattle Times has a 2 part article (part 1 & part 2) on the demise of Wamu. In the first part of their story they reveal that someone at Wamu had made a 2nd mortgage loan to OJ Simpson. The loan was made after he had been found liable in the civil lawsuit and so he wasn't in healthy financial shape at the time. In the documentation for the loan there was a letter from Simpson saying "'the judgment is no good, because I didn't do it."

Supposed Toddler home buyers

The $8,000 tax credit for new home buyers has lead to a lot of false claims and some outright criminal fraud. USA Today article reports that there have been 1.4 million tax claims on the credit and that the IRS "... has opened 107,000 civil cases related to the credit and identified 167 criminal schemes." They even cite one case where a 4 year old was listed as claiming the credit. I am guessing the parents were existing home owners so they filed as if the 4 year old bought the home in order to try and claim the credit.

Wanna house in Detroit?

Its clear that things are not going well for Detroit. They have the highest unemployment and one of the highest foreclosure rates. The situation is so bad that the auction of 9,000 homes or vacant lots that were foreclosed on due to taxes by the county was a "flop". With a minimum bid of just $500 per item less than 20% was sold. Of course many of those buildings are not habitable and the better ones sold for higher prices.


Estate Tax law to be Revised

Another article said that the congressional leadership in the House has said that they will revise the Estate tax law before it expires at the end of 2009. Given current law the estate tax will be repealed entirely in 2010. But it sounds like congress may change that before it happens. The article doesn't say much of anything about what they plan to do but I'd assume they'll have an exemption of $1M or more. So its not anything to worry about in myopinion