Costco Connection - November 2004

THE FINANCIAL CONNECTION Q&A WITH SUZE ORMAN

Today’s lesson: mortgage before tuition

We are in our late 30s and have a 5- I’m a big fan of paying off the house you

year-old son. Should we continue live in ASAP. So, continue making your extra

slicing away our mortgage balance by mak- mortgage payments. I am assuming you are
ing an extra payment each year (with the probably paying no more than $2,000 a

plan to take out a home-equity loan in 13 month on mortgage. If you could pay off the

years to pay for his college), or use that house by the time your son goes to school,

money to invest in a college fund? then you can use that money toward school.

—Beth Hella Since your home would be paid off, you

Clarkston, Michigan wouldn’t be putting yourself at risk.

That said, I am not thrilled with your —Dayleen Kai
strategy. Your basic idea is to pay off one loan Honolulu, Hawaii
(your mortgage) today and replace it with Suze Orman
another loan (a home-equity loan) in 13 I still don’t think it’s a good deal. It doesn’t
years. But mortgage rates are at historic lows, matter if it’s “your” money or “your com-
whereas we have no clue where they will be pany’s” money. This is still costing you
in 13 years when you take out the home- money, even with the tax deduction. I am You are right to be concerned. The
equity loan. So why would you swap a great constantly amazed how mesmerized people Federal Trade Commission reports that iden-
deal today for a loan in 13 years that could be are when the term “tax break” is waved in tity theft tops its list of consumer complaints.
super expensive? front of their faces. It frequently leads to If someone calls and asks for your Social
Also, I never think it’s a great idea to put making really bad investment decisions. Security number, just say no—even if it’s
your home at risk to finance a college educa- Let’s say your monthly lease is $500. That your credit-card company telling you they
tion. A loan, whether it’s a mortgage or based means $250 a month is eligible for the tax need to verify some information. This is one
on home equity, always has your home at deduction. Now let’s say your tax rate is 30 of the easiest tricks scam artists use to get
risk. Miss your payments, say to a sudden ill- percent. So the total value of your monthly tax your info: They pose as a credit-card com-
ness or unforeseen layoff, and you may be write-off is $75. That means you are still on pany and call you up to “verify” your info.
forced by the lender to sell the home. the hook for $425. You want me to change my If you do get such a call, simply hang up
Meanwhile, plenty of options are avail- mind for a measly $75 tax break when you are and call the customer service line (it’s listed
able to finance college through student loans. still paying $425 out of your own pocket? on the back of your card). Tell them you just
And your kid is so young you have time to And that’s before we talk about the other received a call; if it was indeed from the com-
educate him on how he can play a role in all costs you will face. If you don’t return the car pany you can work with that customer ser-
of this: Good grades in high school and after- in sparkling shape you will be hit with wear- vice rep to take care of the issue.
school activities could be his ticket to a finan- and-tear costs. And if you exceed your Why do credit-card and insurance com-
cial-aid package. When he gets into his mileage limit, the overage costs can add thou- panies use your Social Security number? It
mid-teens, a part-time job to help cover col- sands to your final payment. was a convenient way to handle accounts
lege costs will also be a big help. I also don’t get the whole need to trade in back in the days before we had to worry
cars every three years and re-lease. People about ID thieves. It isn’t illegal, but it is an
Qare like hamsters on the exercise wheel— increasingly sensitive issue.
&Athey can never get off and stop making pay- In fact, beginning next month you can
ments. What a waste of money! contact the three main credit bureaus—which
If you buy your car—even if you finance track all your financial data—and request that
it with a loan—you can own it outright in your credit report no longer include the first
three to five years. Then you are free of pay- five digits of your Social Security number.
ments. You also can write off the mileage and That’s a good start. You might also try con-
part of the other expenses if the vehicle is tacting other folks who use your Social
used for your business. Security number as your account number—
You should be able to drive the car for a health insurers tend to do this—and see if you
few more years without monthly costs beyond can get a new account number.
gas and insurance. Now that’s a great business The three credit bureaus are:
decision: reducing your operating costs! • Equifax ( www.equifax.com)

It’s admirable that you and your husband need a new car. I know you’re not in favor are thinking in advance about your child’s Iof leasing. I have my own business and future. So many people wait until their kid is use my car 50 percent of the time for busi- 16, then panic about how to finance college. ness. Would your advice be the same?

KEITH LATHROP

Ask Suze Orman
Send your personal
finance questions to:
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088
Or fax to (425) 313-6718 or e-mail
to suze@costco.com. Please include
“Suze Orman Q&A” in the subject line.
Suze will answer selected questions
in this bimonthly column. She
regrets that unpublished questions
cannot be answered individually.

• Experian ( www.experian.com)

• TransUnion ( www.transunion.com) C

When applying for a new credit card, how safe is it to give out my Social Security number? Why do insurance companies continue to identify patients by Suze Orman’s latest book is The Laws of using their SSN? What can be done? Money, The Lessons of Life. She is the per-