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I am young ( 23), fabulous and broke pality that issued the bond—and is responsible for
(I became a chiropractor in record making the interest payments—is in strong finan-
time). I owe more than $100,000 in stu- cial shape and shouldn’t have any problem paying
dent loans. I will be marrying another chiro- you both the interest and the principal when your
practor soon. We would like to borrow $50,000 bond matures.
to open our own practice. Will it be difficult Getting a 4 percent return may be difficult. Right
for us to secure a loan of this size? now a five-year muni bond yields about 3. 25 percent
—Jennifer Coffey, via e-mail and a seven-year muni yields 3.52 percent. To get
closer to 5 percent you would have to invest in bonds
I BET YOU FEEL LIKE your back needs some that don’t mature for a very long time. I don’t think
“adjusting” given all that debt on your shoulders. As that’s a wise move in today’s market.
for taking on more debt, that is going to depend on a A great strategy is to ladder your investments.
lot of factors. Lenders may worry whether you can Invest some of your money in a bond with a three-
keep up with both your student and business loans. year maturity, another with a five-year maturity and
That said, a bank is also going to look at the future another with a seven-year maturity. That way, every
prospects for your business and decide if it makes few years you will have a bond that matures and can
business sense to invest in your future. Assuming you be reinvested at a higher rate. I think laddering is the
present a good business plan and aren’t a financial way to go these days, as the odds of rates rising out-
mess, you’ll probably be offered a loan. weigh the possibility of them falling.
I want you to get your FICO credit score ASAP The good news is that because you won’t pay
www.myfico.com). Lenders use it to assess what sort any federal tax on your bond interest, your real
of credit risk you are. If your score is in the top range return will most probably be well above 4 percent.
of 720-plus, you may indeed qualify for a great rate. There’s a simple calculation to figure out your tax-
If it is below 720, you should think about holding off able equivalent yield: Divide your tax-free muni
on starting your own business right now. bond yield by your federal tax bracket. The result is
What about working as hired hands in an exist- what a taxable bond would have to earn to beat what
ing business so you can spend a few years paying you earn with a tax-free muni.
down your debt and getting your FICO score into
the top range? That way you will be in a better posi- My husband and I are 55. Our combined in-
tion to snag a lower interest rate on a loan. It also come is $85,000. We owe $210,000 on a home
gives you a chance to build experience and a clien- that is worth almost $500,000. We’re consid-
tele, which will impress lenders. ering refinancing and taking $200,000 from
our equity to pay off debt, invest in a busi-
I’m retiring soon and want to generate some ness and buy a new car. What suggestions do
fixed income. How and where should I buy you have for us?
municipal bonds? I want safe bonds that will —Sheila E., via e-mail
produce at least a 4 percent annual return.
—Sonal Dalal, via e-mail DON’T DO IT! It makes me so nuts to see people
literally using their homes as a credit card. Credit-
MUNICIPAL BONDS can be a great way to gener- card debt is what is known as unsecured debt—
ate income in retirement. If you stick with high-rated meaning there is no collateral that the credit-card
municipal bonds, you can feel confident that the issuer can come after if you default on your pay-
money you invest will be paid back to you in full ments. A mortgage is the epitome of secured debt:
once the bond matures. During the time you own Your home is the collateral! If you default on your
the bond, the annual interest payments you receive payments you may lose the home.
will be free of federal tax, and in many cases you also What happens if one or both of you lose your
won’t have to pay any state income tax on your in- job? Where will the money come from to pay the
terest if you live in a state that levies an income tax. $410,000 mortgage? As for the car, if you can’t buy it
But just because you are retiring doesn’t mean outright, get a car loan. Don’t put your home at risk
all of your money belongs in municipal bonds. You for a car.
still want to keep some of your money in stocks, If you and your husband intend to retire in that
which offer the possibility of higher long-term house, I would concentrate on paying the mortgage
returns than bonds. off, not increasing the mortgage amount. If you get
Municipal bonds that are rated AAA by one of it paid off before you both retire you will have
the major rating agencies are considered to be safe. removed the biggest single payment most people
Safe, in this case, means that the state or munici- need to grapple with in retirement. C
Debt can be a
pain in the neck