During a recent online discussion, a questioner wanted to know if there was a type of professional he or she could hire who would give unbiased advice on those everyday money issues that always seem to pop up.
I could recommend hiring a fee-only financial planner, but that would cost you anywhere from $150 to $300 an hour. Increasingly, there are fee-only professionals willing to work with people who want more than just investment advice.
Scott D. Cole of Birmingham, Ala.-based Cole Financial Planning, a part of the fee-only Garrett Planning Network, said he would gladly sit down with someone looking for everyday financial advice.
"There are so many choices out there and the consumer gets mixed messages, so it's helpful to have someone that doesn't have a vested interest in the outcome to tell them what they think from a financial perspective," Cole said.
However, Cole admits it's not economical for people to pay an hourly fee to determine if they should buy or lease their next car. They aren't going to hire an adviser to help them figure out if they should apply for more credit. So what can you do if you need such advice?
One technique is to create a pro and con list when faced with a financial dilemma. For example, I got this question during a chat: "What do you think of the stores that offer free interest if a product is paid off in 12 months?"
On the pro side of your list, you can write down that you get to buy an item and delay paying on it for a year. Typically with these no-interest deals, you apply for a credit card and the amount of the purchase is charged to the new card. You get a monthly statement but no interest or principal is due until after the 12th month.
On the con side, you should indicate that opening up another credit card can lower your credit scores in two ways. First, the retailer or lender has to do a credit check. That inquiry alone can lower your credit score. In addition, the consumer is often approved for a credit line in an amount close to the cost of the item being purchased. If you use more than 50 percent of the available balance on the credit card, that too will lower your credit score.
Also on the con side, make note that if you are just one day late in paying off the balance as part of a no-interest/no-payment offer, you will be hit with back interest, typically 18 to 20
percent or more. Lots of people don't realize that the interest starts accumulating from the date of purchase, not when the interest-free period ends.
To make this work and keep from paying a high double-digit interest rate, you have to make certain that in the next year you will have the money to pay off that credit card.
What if you are in the market for a car? "Please explain why leasing a car is so terrible," one chat guest wanted to know. I've consistently said that I think leasing a vehicle is a bad long-term financial move for the overwhelming majority of people who do it. Read "The Millionaire Next Door." About 81 percent of millionaires purchase their vehicles. But let's go through my little exercise.
On the pro side of your leasing list, here's some of what you might write:
w You get to drive a better car than you can afford to buy.
w Monthly lease payments are lower than monthly car loan payments.
w You don't have to worry about a major repair bill.
w Leasing makes sense if you like trading in your car every few years and if you drive less than 15,000 miles a year.
On the negative side:
w Leasing encourages you to live beyond your means.
w You may save on a month-to-month basis but long term, buying a car and keeping it for years saves you more money. Serial leasing means you always have a car payment.
w Many new and used cars have the same warranty coverage for major components as your leased car, according to Alex Rosten, an industry analyst for Edmunds' AutoObserver.com. "Quality standards have improved so much over the last 10 years," he said.
w Lease contracts usually impose additional charges for excess wear and tear.
w You may in fact drive more than you anticipated. What if you change jobs and your commute is longer than you had planned when you signed the lease? What if you move? If you exceed your mileage allotment, you will pay dearly, typically 15 cents to 25 cents for every mile over your limit.
The thing about personal finance is to have some techniques to help you when you don't have the assistance of a professional. When faced with a financial decision, often the right choice will feel more comfortable to you if you take the time to consider both the pros and cons.
Write to Michelle Singletary in care of The Pantagraph, 301 W. Washington, Bloomington, IL 61702-2907.