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Roll car loan into home loan?

Dear Dave,

I was wondering if you thought it would be a good idea, if we were debt-free except for our house and my car, for us to have our car loan rolled into our house loan so that we can deduct it on our income taxes. We owe about $6,100 on the car and our household income is about $55,000 per year. Would this be a good thing for us to do?

Sylvia

Corpus Christi, TX

Dear Sylvia,

I would rather you just pay off the debts. You are almost there. You have all your little debts cleaned up, and these are the last two big ones. You’ve been working on these and you have done well.

One thing we always teach people about getting out of debt is that you have to get mad, you have to be passionate and it has to become an all-out priority. When you do that with $55,000 worth of income, $6,100 in car debt goes away in less than a year. So your tax deduction is very minimal. If you pay off $6,000 over one year, the average balance would be about $3,000. And if we do that at even 10 percent, that is $300 of a tax deduction and that will save you about $100 in taxes. It’s just not worth it.

There are other things you can do for $100 easier than that. It’s more of a mind game that the banks play in order for you to use their debt versus someone else’s debt. They say you will be sophisticated because it is a tax deduction, but when you do the math, it will barely buy you a Happy Meal.

Just bear down on the car debt and knock it out because given the time frame and so forth that we are talking about, it is not a relevant amount of money.

Dave

Estate will and probate question

Dear Dave,

If a person has a legal will through an attorney signed and notarized and you are the executor, at that person’s death do you have to go back through an attorney and have the will read and filed? I have heard both that you do and that you don’t. I don’t know which one to believe. Please advise.

Richard

Roswell, GA

Dear Richard,

I am not an attorney, let me make that clear, but I have had a little experience around probate helping our clients who are working through these kinds of situations. It will vary from state to state, but in most states you do have to file the will at the courthouse, where it is public record. That is a method of having the will ‘probated.’ The court then approves the will and endorses the assignment of you as the executor, and then you begin to do all the steps toward liquidating the assets of the individual and pay them out to the heirs.

There is usually a tax at that point in most states called a probate tax where the estate is taxed. Most of the time that tax is around three or four percent, but again, that amount could vary from state to state.

What I would do if I were you is check with an estate attorney in your state and they can tell you for sure what you are responsible for.

Dave

When you make good money, what is the emergency fund limit

Dear Dave,

My husband and I make about $100,000 annually and we were wondering how much money we should have in our three-to-six month emergency fund. What do you suggest?

Patty

Sikeston, MO

Dear Patty,

I would suggest to you the same as I would to anyone at any income level. You should have three to six months worth of your monthly expenses in that emergency fund.

If you spend everything you make, that would be a minimum of $25,000. That would be three months’ expenses on a $100,000 income. But remember that it is for expenses, so if you don’t have any debt, and let’s say you only use $3,000 a month to live, then you would need $9,000 to $18,000 in your emergency fund, because that would be three to six months’ worth of your expenses. This way if, heaven forbid, you were to lose your jobs or some other kind of catastrophe would happen, you would have money set aside to live on.

Grandma always taught you to have money set aside for a rainy day, and this is what she was talking about.

Dave

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