Q: I received an offer from a credit card company to transfer my $6,000 balance to a card. I’ll pay a one-time fee of $65 to transfer the balance, but then the interest rate will be 0 percent for a year. After that, the interest rate will rise to 9.9 percent.
That’s what I’m paying now. So, it seems like the new card is a good deal. But, I’m worrying about my credit score, because I want to apply for a car loan and possibly a home loan in the next six months.
Should I transfer the balance and then close my original account? Or, should I keep it open?
A: It sounds like you’ve got a great opportunity to transfer your balance, and not pay interest for a year. As long as you’ve read the fine print, and there are no hidden fees (in addition to the $65 you know you’re going to have to pay) attached to this move, Id make it.
But you should keep your current credit card account open, even though it will no longer have a balance and you won’t be charging anything on the card.
One of the things that helps raise your credit score is having credit cards accounts open for a long period of time. So, if you have a card for 10 years, it’s better than having a card for one year and closing the account.
So, transfer the balance, and keep the account open, for now. Make sure you put as much toward paying down the balance as possible, so when you do go to apply for a car loan or home loan, you’ll be able to borrow what you need to buy what you want.
Q: I am renegotiating my home security system contract. I am just ending a 3-year contract at $30.99 per month.
They are offering me a new rate of $20.99 per month plus a $4.00 service agreement. If the system fails, this covers the cost of sending out a technician to repair or replace the current system. Without the service agreement, it will cost me $48 per hour for the technician to come out if there is a problem.
I feel that the 2 year agreement at $20.99 is okay, but I am uncertain about paying the additional $4 a month. Would you recommend that I keep or waive the service agreement?
A: I’d pay it. Even with the service, you’ll be saving $6 per month, and this way, if you have a problem, you’ll be covered.
At the end of two years, if you don’t think you’ll have a problem going forward, you can sign another contract without the extra $4 per month charge.
Q: I have approximately one acre that is my primary residence. I am considering offering a portion of the land to a next door school for purchase. What would be the best way to determine an offering price?
In addition, could I sell the entire property to the school and then buy back just the residence (and minimal land) and thereby avoid the capital gains tax of just selling the land?
A: It’s difficult to know what the tax treatment will be from the information you provided in your letter.
But, here’s how to get started: Figure out how much the house and land are each worth. Talk to a local real estate agent about land prices in the area and how much people are paying for vacant lots and homes with smaller yards.
Then, go to the school and see if they’d be willing to purchase your land, but sell back the house, or if they’d want the entire property.
You’ll need a good real estate attorney and tax advisor who can structure the deal for you so that you can take some, or all, of your capital gains tax free.
If you handle the sale in the wrong way, you might negate your ability to take advantage of the capital gains tax exclusion.
Jan. 19, 2009.
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