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Commentary: | |
| Top Tips |  Column archive |
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Foreclosure versus short sale
Gerri Willis answers readers' e-mails about foreclosure, college funds and savings.
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| For more information on managing your largest investment, check out Gerri Willis' "Home Rich," now in bookstores. |
Current Savings Rates |
| Type | Overall avgs |
|---|---|
 | |
| MMA | 2.33% |
| $10K MMA | 2.53% |
| 6 month CD | 2.72% |
| 1 yr CD | 3.03% |
| 5 yr CD | 3.56% |
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NEW YORK (CNNMoney.com) -- Question 1:
Can you explain the financial impact as far as foreclosing versus a short sale? Why go through the pain of a short sale when it is simply easier to walk away and foreclose? - Rob, California
A foreclosure and a short sale look about the same on your credit report. It's devastating.
With a short sale, you sell your home and if you don't satisfy the mortgage amount the bank may forgive the deficiency. A short-sale is positive for both the lender who doesn't have to go through the process of foreclosing and the homeowner, who may be able to walk away without a huge amount of debt.
If you simply walk away, your house will be sold at auction, and if the amount it's sold for doesn't satisfy the mortgage, you'll be on the hook for the deficiency. And lenders can go after you for the money by attaching liens on other property you own.
Question 2:
I would like to invest in a 529 plan for my 4-month-old daughter. But I am not sure how to pick a good plan that offers low fees and good returns. - Mike, New Jersey
Good job on being ahead of the game when it comes to college planning.
The first place you should look is your own state. Your own state may have a deduction on state income tax for contributions on your state plan. In your case, Mike New Jersey doesn't have any deduction. So, you'll want to look at a state that has a plan with Vanguard or TIAA-Cref.
"That's where you'll find the lowest fees in the industry," says Mark Kantrowitz of finaid.org. Keep in mind you don't want fees over one percent.
To figure out what your options are, go to finaid.org/savings. And to get the most out of your money, focus on an S&P 500 plan, a total stock index or an asset allocation plan that gets less aggressive as the child approaches college.
And bear in mind, you may have trouble finding a fund that has great returns right now, but remember, you have a long horizon so you can ride out minor bumps.
Question 3:
In this time of economic uncertainty, should we be saving more, or continue our focus of paying down our high-interest student loan debt? - Sara, Idaho
That's a great question. Generally when the economy slows down you want to focus on your emergency fund. Make sure you have at least three to six months worth of living expenses that are available to you either in a bank account or a money market account.
Of course, the sad truth is that it's hard to find a savings vehicle that will yield you a lot of return. But check out bankrate.com to see if there are any CD rates that are paying more than three percent.
As far as your student loans go, consider making extra payments once you have a healthy emergency fund. And don't forget, you may have a tax rebate coming to you, and you can use that cash to make an extra payment. 
