Are you nothing without credit?
Dear Dave: I'm trying to get my wife on board with us getting out of debt, but she tells me that if you don't have credit you're nothing. We're Christians, we make good money — about $75,000 a year — so why does she feel this way? What can I do to help open her eyes? — Jay
Dear Jay: Lots of people believe the only way to have good things is to have payments attached to them. Many times the only reason for this is that their parents had the same wrong idea about handling money, and it rubbed off on them.
You two have a good income, so there's no reason to have payments on anything except maybe your house.
It may be that she just needs her hope restored. That's what most people in this country need. But because you're both Christians, I think there's a chance to help her and turn this into a great spiritual discussion.
Proverbs 13:12 says, "Hope deferred makes the heart sick, but when the desire comes it is a tree of life."
In other words, when you can see something at the end of the tunnel that's not an oncoming train — something that's real light and real hope — you get excited. Think about it, Jay. There's not one place in Scripture where God uses debt to bless his people. In fact, the Bible calls debt a curse.
You can always crunch numbers and show someone how to save, budget or pay off debt.
But I believe the easiest way to find hope or reach someone's heart is to think in more spiritual terms. — Dave
Annuities or CDs?
Dear Dave: Which is safer, CDs or fixed annuities? — Ray
Dear Ray: CDs are safer, but they're not necessarily better.
A fixed annuity is basically a savings account with a life insurance company. In most cases, life insurance companies pay into a risk pool at the state level. If the company goes broke, the money in the risk pool is supposed to cover you. But if a huge insurance company went broke and drained the risk pool, it would depend on how the pool was structured as to whether or not the state would be liable and you'd get your money back. With CDs you're a little bit safer. You've got the Federal Deposit Insurance Corp. — the government — chartering the bank and guaranteeing all depositors up to $100,000 in the bank. If you have to choose between these two, I'd recommend CDs. However, I'd do neither and go with a money market account from a good mutual fund company. This will pay close to CD rates, but with no penalties for early withdrawal if you have an emergency.
Dear Dave: I have a rental property and can't decide whether to sell it or keep it. I'm debt-free except for the rental property and make about $75,000 a year. The rental property is worth $60,000, and I owe $24,000 on it. — John
Dear John: This is really a matter of personal preference. You're in pretty good shape financially and could pay off the rental property in a year or two. But there's nothing worse than being a landlord when you don't want to be one and don't love real estate. Talk about a pain in the neck! Ask yourself this, John. If someone offered to sell you a home just like the one you own now or right next door to it, would you want to buy the house? If the answer is no, then it's time to sell the one you've got. It's not a bad deal if you feel that way. You'll get the responsibility of being a landlord off your back and become debt-free all at the same time! Of course if you like the rental, then just pay it off in the next couple of years and keep it. — Dave