Are any of the store credit cards your oldest credit account? In other words, was one of these cards the very first credit card or loan you took out? If so, I would keep that card open until after you get a mortgage, but go ahead and cancel all the others now.

If not, I don’t see the harm in canceling all four of these accounts. Store cards don’t have really high credit limits, so closing them is unlikely to have a huge impact on your credit utilization. Plus, the fewer open accounts you have when you apply for a home loan, the better. Your credit score may dip slightly immediately after closing the accounts (for a couple of months), but not by much, and it should recover.

Even so, I would think lenders would rather see you have a slightly lower credit score than a higher score but a bunch of open and unused credit cards.

Good Luck,

David @MoneyUnder30

Very simply, Yvonne, start contributing to your 401(k) today!

Investing, including in your 401(k) plan, is a long road. The best long-term investors (whether they’re professionals or individuals like you and me) make consistent contributions to investments in good times and bad. Basically, they ignore the market and keep on investing.

Obviously, the markets have ups and downs, and we’re just coming out of a pretty big “down”. Almost everybody lost a big chunk of their retirement savings last year. Mine was down about 35 percent a year ago, although it has almost entirely recovered. I didn’t actually “lose” that money because I’m invested for the long haul; I didn’t cash out. You only truly lose the money if you cash out while you’re down.

The markets will always be volatile, but as long as you make investing a habit and stay invested for the long-haul, it really doesn’t matter.

Good Luck,

David @MoneyUnder30

Although the fact that those four accounts are already listed as potentially negative means some damage has already been done to your credit, the best thing to do is always to repay as much as you can of your debts, no matter how old they are.

You may want to try contacting these creditors directly and seeing if they will take a partial payment to settle the debt. This will appear on your credit report as a settlement, but that’s better than having a closed account which you still owe money. Or, try to negotiate a payment plan with them that will repay the total amount over time. Sometimes creditors will stop charging interest altogether if you can promise to make monthly payments on time. If they did this and you could afford just $80 a month, you could get rid of these debts in about two years.

Accounts stay on your credit report for about seven years from the last time information is reported about them. And typically, your credit score starts to recover from negative accounts after about two years have passed. So the sooner you pay them or settle them, the sooner the clock starts ticking on the two years and seven years. As long as they stay unpaid, they’ll probably remain on your account.

Good Luck,

David @MoneyUnder30

Under the existing $8,000 first-time home buyer tax credit law, no, the fact that your name was on the deed to a home (even if it’s not on the mortgage) would exclude you from taking the first-time home buyer tax credit. There is, however, some good news for you.

Congress is voting today on whether to extend the first-time home buyer tax credit program (which is slated to end November 1). If passed, the extension also includes tax credits of up to $6,500 for buyers who have owned their existing homes at least five years. To take the credits, both groups of buyers would have to sign a purchase agreement before April 30, 2010 and close by June 30.

Good Luck!

David @MoneyUnder30

I plan on trading in this car once it is repaired and I have a steady income, but I need to figure out how to get it fixed first. I know I need to build credit as well, so would you recommend putting the repair on a new credit card so I can make small payments until I get a job (the one I am hoping to get pays well and will allow for much larger payments once I start)? I don’t want to drain my savings to fix this car just in case something else happens, but I do not like
debt. If it does sound like a good plan, what credit card would you recommend? I only plan on using the card for this one big repair cost, and once that is paid off, only small purchases to build credit, occasional big expenses for no more than a few hundred dollars for electronics and/or possibly small trips. What would you recommend?

Sorry to hear about your car troubles! I just shelled out $1,000 for car repairs last week and know exactly how painful that is. It sounds to me like you have a couple of things going on here: you need to figure out your transportation problem, you want to start building credit, and you’re wondering what a good first credit card would be.

$2,300 is a whopper of a repair bill, but still cheaper than buying a new car. The question is, will making this repair get you another year or two out of the vehicle? If not, is it worth repairing? Is there any way you can get by without a car until you get a job and can buy a new car? If not, would spending $2,000 on a clunker that will last a year or two be better? (That’s another question you can ask a mechanic you trust).

Alternately, you might consider trying to finance an inexpensive, but more reliable, new car sooner. If you can find a relative to cosign an auto loan for you through a local bank or credit union, you might be able to get a 36-month loan for a $6,000 to $10,000 quality used car. This will solve your car problem and help you build credit. It’s worth a shot.

I recommend trying these avenues only because I’m not sure getting a credit card to pay the repair bill is a great idea or if it will work at all. Typically when you get your first credit card (especially while you’re still a student and don’t have full-time work yet), the cards you can get approved for are going to have higher interest rates and lower interest rates than average. It’s not uncommon for your first credit card to only have a $500 limit and a 19 percent APR.

Should you still get a credit card? Sure. But you don’t need to carry a balance to build credit. It’s far better to get in the habit of using your card for things like gas and food and paying it in full each month. You’ll still build credit to help you down the road, but you won’t go into debt. Again, if you belong to a local bank or credit union, ask about starter credit cards there.

Alternatively, try the Discover Student Card or Citi Forward Visa. These cards are both designed for people “new to credit” so you’ll be more likely to be approved for them.

Good Luck!

David @MoneyUnder30

It sounds like you’re receiving direct cash student loan disbursements and, as you say, you can spend that money on anything. Most student lenders make provisions for borrowers so that loans can be used to pay not only tuition and fees, but also living expenses while you are in school (housing, food, transportation, etc.)

Since it’s already “okay” to use student loan funds for these personal expenses, it’s not a huge stretch to pay down credit card debt with the funds. As for the legality, the only way to be sure is to dig out your student loan promissory note (that thing you signed when you got the loan, if you kept it), to see if it puts any requirements on how the funds are used. It seems to me that it would be almost impossible for lenders to enforce this, but you should at least know if what you want to do is or isn’t explicitly “breaking the rules”.

If you were to do this, keep in mind that you are not eliminating the debt, just rolling it into your student loans. It could be very easy to just rack up new credit card debt and have twice the debt you once did. Make a plan to stay debt free.

Good Luck!

David @MoneyUnder30

If your only requirement is to keep this money safe while you determine how you want to invest it, then any FDIC-insured savings product is the way to go. With today’s interest rates, you shouldn’t expect to earn much on this cash in the short-term. If you want to keep the money liquid so you can access it at any time, a high-yield online savings account is your best bet. (You’ll be able to beat Schwab’s 1.05% rate, although not by a whole lot).

If you know you won’t touch the money for six months or longer, you might find a slightly better rate in a traditional six-month CD. Here are a few sites that let you search for top rates:

• Bankaholic CD Rates
• Bankrate CD Rates
• Money Rates CD Rates

Good Luck!

David @MoneyUnder30

Thanks for your question. Congrats on going to a 15-year mortgage; that’s a big step in the right direction that I think most people are afraid to take!

As for saving for retirement or paying down student loans: Unless you have private student loans at interest rates of more than 10 percent, I’d definitely get your retirement savings in gear.

If your employer offers a 401(k) and matches your contributions, at least contribute the maximum they will match (usually six percent of your income). Even better, contribute an even ten percent.

In addition, (or if your employer doesn’t have a retirement benefit), I would try to contribute the maximum $5,000 per year to a Roth IRA. You can open an IRA online fairly easily, and most places don’t have minimum balances on IRA accounts.

Typically student loans have fairly modest interest rates and your money will work harder for you invested in the markets over 30 or 40 years than it will paying back a six or seven percent loan ahead of schedule. (Plus some federal student loan interest is tax-deductible). Finally, it’s always a good idea to get in the habit of saving for retirement as early as possible so it becomes a lifelong habit.

Good Luck!

David @MoneyUnder30

You seem to have stumbled upon an interesting idea, but unfortunately it won’t work.

The tax-credit you’d be eligible for is 10 percent of the home purchase price up to a maximum of $8,000. So if you bought a $10,000 home, you could only claim a credit of $1,000. You would have to buy a home that cost $80,000 or more to get a credit for the maximum $8,000.

Even if the law would allow you to buy an $8,000 and get the $8,000 tax credit (making the home free), an $8,000 property—even if it were actually free—is going to cost thousands (if not tens of thousands) to do anything with. Live in, flip, etc.

Properties this cheap (even in tanked real estate markets like parts of Florida and Michigan) may need to be torn down and rebuilt. Even if they’re structurally sound, they may not be inhabitable. I’d stay far, far away.

Finally, buying a foreclosed home is not as easy as many make it seem. Banks can take months to get back to an offer on a foreclosed home—if they respond at all. Any foreclosed home that’s a really good deal will attract plenty of investors and home flippers who know what they’re doing, so you’ll be competing with strong offers (usually cash). Finally, there’s the title problem.

With many of today’s foreclosures, the mortgages have been split and sold so many times, it’s unclear who actually holds the title. In many states, people have bought foreclosed homes only to learn that the seller never had the title. The result? The buyer is stuck with a home that they can never legally sell again—or worse—that a legitimate owner may be able to claim from them someday.

At the moment, I’d focus on getting a job (which mortgage lenders will absolutely require; they won’t lend to somebody with perfect credit if they don’t have an income). Once you get that nailed down, if the tax credit is still available, I’d try to buy a really inexpensive property, but not so cheap that you’ll spend more than the purchase price making it livable.

If the three conditions are not met you will earn something like 0.15% APY. I was thinking is it worth it for me to move my savings over there, sign up for bill payment and pay something stupid like a cell phone bill, and just used the check card to buy gum 12 times a month and get that good interest rate for my savings account. What do you think?

This looks like a good deal to me. You gotta love small banks and credit unions for stuff like this. This is where they really outshine the big guys.

The only catch I see (in the fine print) is that this rate is only good on balances up to $25k. So if you are looking to park more than that the interest rate drops to 0.75%. Otherwise, if you can meet their requirements (the hardest one being using the debit card 12 times a month), I’d say this is the best place to park your cash I’ve seen in a while.

Good luck!

David @MoneyUnder30