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The Simple Dollar

Interest rates on student loans: when things get fishy

Interest rates can change when consolidating private and subsidized loans. Be sure to have the consolidation and the interest rates documented. See question No.3 of the Reader Mailbag.

By Guest blogger / June 7, 2011

Jason Lewis, a junior at Middle Tennessee University, picks up student loan information at the campus financial aid office, Thursday, Jan. 29, 2004, in Murfreesboro, Tenn. If you consolidate student loans, be sure you keep clear documentation of the interest rates.

Mark Humphrey / AP

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What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.

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Recent posts

1. Car buying question
2. Food business
3. Student loan question
4. Difficult car choice
5. Moving from Mint to spreadsheet
6. Savings or down payment?
7. Homeschooling
8. Overwhelmed by mortgage
9. Investing versus loan repayment
10. Hidden messages?

Yesterday’s review of The Total Money Makeover Workbook left several people asking me about other workbooks. While I may eventually review a few of them, I’ll say that most of the ones I’ve seen on the market are exactly like TMMW: they’re just rewrites of other personal finance books with some detail removed and some spaces for writing inserted in their place.

By default, I always would recommend grabbing a notebook and a pen and just working through a regular book instead of a workbook. You’ll get more out of the experience – and you’ll be able to work through the book again in the future or easily pass it along to friends.

Q1: Car buying question
My husband and I are moving from New York City to the Midwest and we need to buy a car fairly quickly. We both have jobs (he’s started his, mine starts in three weeks), and will gross about $75,000 a year combined. We have $33,000 in combined student loans (currently paying minimums) but no other debt, and $45,000 in savings earmarked for the move ($4,000 for the movers), emergency fund (no set amount really), and eventual house downpayment or student loan repayment. While we’d hoped to be able to rely on public transit, the job I found is not actually in the city center and we will need to purchase a car for me to get to work. We can borrow a car for a week or two, but that’s it.

I’ve lived in NYC and have been car-free for nearly a decade – and my college car I bought from a kid in my dorm for $1000 in cash on the hood, no negotiation, no mechanic’s visit, nothing (which worked out fine, but it’s not something I want to do this time). My husband bought his last car five years ago by walking into a dealership and walking out with a brand-new lease, which he ended up returning less than a year later when he was transferred to New York. We are both rusty and kind of intimidated by the used-car buying process.

Our biggest priorities are safety, reliability, and gas mileage; we plan to buy used and pay cash, but every time I look on Craigslist I am overwhelmed, mostly because I am not there in person yet and don’t feel like I will have the time to shop around. I will arrive in our new city five days before I start my new job, and as I will be the one driving the car 90% of the time, we feel that I should be the one to test-drive and pick it out. Ten years of ignoring what’s going on in the car market because it didn’t apply to my life has made me feel like I’m in over my head.

How much would you spend on a car in our situation, and how would you shop for it?
- Rachel

I would buy a low-end inexpensive car to start with, one that will allow me to commute easily for a while but won’t financially break me. I would not compress shopping for a $15K or a $20K vehicle into such a short timeframe. Focus on something very low end with the understanding that you’ll upgrade later on.

I would pay cash for this vehicle. I would also expect that within a year or two, you’d be shopping for a better replacement car, but at that point you’ll have the time and energy and focus to do it slowly and with adequate research.

Don’t overthink this purchase. You’re going to have a lot of other things to worry about when you move, so just go low end and don’t stress about it too much.