How long should car be kept before replacing it?
Dear Liz: The conventional wisdom is that you save money by hanging on to your old car; the longer you keep it, the more money you supposedly save. But the longer you wait to replace your old car, the more prices for new and used cars will rise due to inflation. Since you eventually have to replace your car, at some point will you lose money by waiting too long to replace it? How do you figure out where that point is?
Answer: Predicting future inflation is pretty tough and depends on a number of factors. Right now, for example, many used-car models are fetching significantly higher prices than in the past because of the sharp decline in sales of new models during the recession (leading to fewer available used cars now) and the fact that many owners are hanging on to their cars longer to save money. The production slowdown in Japan after its recent disasters is also affecting used-car prices.
Since predicting inflation is tough, you’d be smarter to focus on the factors you can more easily control: your savings and the condition of your current car. With proper maintenance, today’s vehicles can notch well over 200,000 miles. Owning a car for 10 years or more gives you plenty of time to save up cash to buy your next vehicle.
Don’t plan on getting Mom’s assets
Dear Liz: I’m 56, make $30,000 and have no credit card debt. I rent and I have no assets except for about $350,000 to $400,000 in cash, stocks, oil and gas leases and property that I will inherit from my mom’s living trust. She is 85 years old. Are there any specific suggestions you would give me to be preparing for my retirement years?
Answer: Let’s be clear: You have no assets. Your mother does, and she may plan to give those to you, but those plans could change. She may well need her money for living expenses and long-term care, which could easily eat up that nest egg.
So you need to start saving on your own for retirement. You may think you can’t live on less than you are now, but make no mistake: You’ll be living on significantly less if you don’t save. Your Social Security benefit, if you retire at 66, will be around $1,000 a month.
If you have a workplace retirement plan such as a 401(k), start contributing to that. If you don’t, put money aside in an individual retirement account. If your adjusted gross income is under $27,750, you may qualify for a tax credit that can help you, known as the Retirement Savings Contributions Credit or Savers Credit. (You’ll use Form 880 to figure the credit; visit https://www.irs.gov for more information.)
Not using credit cards can hurt your score
Dear Liz: I recently got a loan to buy a new car, but my bank refused to give me its best, 1.5% interest rate and I was forced to take a 2.25% rate. My credit scores are in the mid-700s, but the bank denied me its best rate because I have no revolving credit. I haven’t had credit cards for over 20 years. I have bank accounts and installment loans, including a 20-year loan I paid off in two years and a 30-year loan that was paid off in less than five years. Since when is it a law that I have to have credit cards, and why should I be discriminated against for not using revolving credit? It should be against the law (and probably is) to force me to use revolving credit cards when I do not wish to, and suffer a higher rate if I don’t.
Answer: Lenders aren’t required to give you their best rates because you think you deserve them. They are allowed to use reasonable criteria to judge your creditworthiness, which can include credit scoring formulas — and those typically reward people for having and using different types of credit (credit cards as well as installment loans). You can have good scores using only one type of credit, but the best scores are typically reserved for credit reports that have both.
The good news is that you don’t have to carry credit card debt to have great credit scores. Using two or three cards lightly and paying them off in full each month is the best way, both for your scores and your pocketbook.
Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.
