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Suze Orman’s latest
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My 21-year-old son just received a I assume that dear broker of yours talked you into.
summons to appear in court to pay These funds are sold under the guise that there’s no
$1,200 in credit-card debt. He also owes commission to pay when you invest. But as you are
$1,250 in school loans and an additional learning the hard way, you end up getting caught
$1,000 on another credit card. He is not paying if you leave within five years or so. The basic
working and has no means to pay this back. setup is that you pay 5 percent if you leave in the first
What should he do? year, 4 percent if you leave after two years, etc.
Mom Going Crazy, via e-mail My suggestion is to ask your broker to explain
why he specifically chose this investment for you. Is
YOUR SON IS OLD ENOUGH to legally drink, there a good reason? Find out the expense ratio, and
drive a car and vote. By all official measures he is an when your “penalty” for leaving will disappear. You
adult. You need to stop treating him like a kid. He also need to realize that your investment may sim-needs to learn to be responsible, and that starts with ply be mirroring the overall market, which is down
pulling himself out of this hole he dug. slightly in 2005.
He owes, so off to
work he should go
KIE TH LATHROP
If the court appearance doesn’t scare some sense But if you don’t like the answers the broker gives
into him, you might point out that his financial joy you, it may be time to leave. When you reinvest, focus
ride is going to haunt him for years. His FICO credit on no-load funds with low expense ratios. And if
score has got to be a mess. A FICO credit score you end up with a loss when you sell the B share,
pretty much controls one’s financial life. A bad score remember that you can claim up to $3,000 a year in
means a higher interest rate on credit cards and capital losses as a deduction on your federal tax
home and auto loans. Landlords will not want to return. Any amount over $3,000 can be carried over
rent to him, nor will cell-phone companies be will- to future years.
ing to offer him a plan without a hefty deposit.
He might also have a tough time landing a good I’m 44 and a widow. I would like to pursue
job. Many employers take a look at FICO scores as a a master’s degree. My mortgage balance is
way to size up how responsible potential employees $145,000, and my condo is worth $320,000.
are. And many insurance companies use their own I know you’ve said that people shouldn’t
version of FICO scores to set premium rates. use their home as a credit card. But where
Is he living at home rent free even though he else can I get the money for my tuition
doesn’t work? If he is to keep living with you it is and books?
time for him to get a job—any job—so he can start Karina Parker, via e-mail
to pay his bills. All he needs to do to make the credit-
card companies happy is to commit to paying the I THINK YOU ARE GOING to be pleasantly sur-
minimum balance due each month. By my calcula- prised at the loan deals that are out there. You can
tion, we’re talking about $90 a month to cover the borrow up to $18,500 a year for grad school through
minimums on both cards. That’s less than $25 a a federal Stafford loan. If you are eligible for a sub-
week. There is no excuse for not being able to come sidized Stafford, the government picks up the inter-
up with that. est costs on the first $8,500 while you are in school,
He also can’t run from the student debt. Even and you don’t have to pay the interest on the other
bankruptcy doesn’t wipe out a student loan. Worse, $10,000 until you start repaying the entire loan after
he could have his paycheck garnished if he doesn’t graduation.
start making good on the loan. He must get in touch But even an unsubsidized Stafford is a good
with his student-loan lender and work out a pay- deal. You are responsible for all the interest pay-
ment plan. His balance is so small and repayment ments, but, once again, you don’t need to start pay-
terms are so generous that it will undoubtedly be a ing until you are out of school. The Stafford interest
small monthly payment. rate is reset annually with a maximum of 8. 25 per-
cent; right now people repaying their loans are
I am 44 and have invested $10,000 with a bro- charged just 5. 3 percent.
ker I am not happy with. I was told that to School loans are smarter than a home equity
close out my account I’d have to pay a large loan or line of credit, where you put your home up
penalty. Is it worth the penalty to pull my as collateral. And once you have that master’s you
money out? will be able to get a great job and start repaying your
Stacey Moschetti, via e-mail loan. By the way, you may even be able to get your
loans deferred or forgiven if you enter certain fields,
FOR YEARS I HAVE BEEN warning people to not such as teaching. You can learn more about graduate
invest in Class B mutual fund shares, which is what loans and repayment terms at