Dear Liz: You recently answered a question about whether to finance a car purchase. I bought a car in 1963 whose wheels couldn’t stay in alignment. By the time I had driven it 20,000 miles, I was on my third set of new tires. My next car had other repeated problems. Solution? Since then I have always leased and when the lease is up, I buy the car if it has been reliable. By then, the car is cheaper.
Answer: There are at least two ways to view your approach to cars. One is that you found an approach that suits you. The other is that you’ve been overpaying for vehicles for decades based on two long-ago experiences. Meanwhile, car reliability has steadily — and dramatically — improved.
Although there are exceptions, leasing is generally the most expensive way to pay for a car. And buying cars after the lease is over also can be problematic if the buyout price, which typically is set at the beginning of the lease, is higher than the vehicle’s market value.
On the surface, leasing can seem like a good deal. The car’s always under warranty and unlikely to need repairs. Lease payments are often lower than loan payments, since you’re not paying principal. That means you can drive a more expensive car than you could afford if you were paying cash or financing.
But that also means you don’t have any equity in the vehicle. Plus, leasing means you’re paying for cars during their first few years on the road, when they’re rapidly depreciating.
Sometimes manufacturers sweeten lease deals to make them less expensive than an equivalent loan, but usually you’ll pay a lot more over time leasing than you would buying.
What to do with a drawer full of unused credit cards?
Dear Liz: At 75 and 79, my husband and I have no plans to buy a new car or property. We own our home and cars. We have excellent credit ratings. We use one major credit card. I’m consolidating our financial life for our heirs. We have a drawer full of cards we never use. Is there any reason not to just cancel these cards and save our heirs the trouble? Should I care if my 850 credit score tanks?
Answer: At this point, simplifying your finances probably makes more sense than trying to keep your credit scores as high as they can possibly be.
Cards you aren’t using still need to be monitored for fraud, which is a hassle, plus you may be paying unnecessary annual fees. Reducing the number of accounts should make your life easier, but don’t go too far.
As explained in previous columns, each spouse should have at least one card on which they are the primary account holder. A spouse who is an authorized user often loses access to the card when the primary account holder dies and card issuers close the account. Few credit card issuers offer joint accounts these days, so you should determine who is the primary account holder and who is the authorized user on each of your cards before deciding which to close.
You can reduce the damage to your scores by trying to preserve as much of your current credit limits as possible. Ideally, the cards you keep will be the ones with the highest limits. If you’re closing other accounts at your chosen issuer, you can ask that the credit limits for the shuttered cards be transferred to the card you’re keeping.
Eyeing a second divorce and the first ex’s Social Security
Dear Liz: I was married for 12 years and have remarried. If I divorce again, am I eligible for my first husband’s Social Security?
Answer: People who were married for at least 10 years and who are currently unmarried may be eligible for divorced spousal benefits based on their ex’s work record. So if you divorce, you may be eligible for up to half of your first husband’s benefit at his full retirement age — assuming that this divorced spousal benefit is more than your own retirement benefit.
Applying before your own full retirement age means your divorced spousal benefit would be reduced. The benefit also would be subject to the earnings test, which reduces your benefit by $1 for every $2 you earn over a certain amount, which in 2024 is $22,320.
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
