Auto Club or Towing Insurance? - questions and answers about financial management - Brief Article

Kiplinger's Personal Finance Magazine, Nov, 1999 by Kimberly Lankford

If your car is under warranty, you may already have road service.

I'm thinking about joining an auto club that provides towing if my car breaks down, but I know I can buy some kind of coverage through my insurance company. Which is better?

--FRANK ADINOLFI, Kings Park, N.E

You may not need either. If you have a car that's still under warranty, the manufacturer probably offers emergency roadside assistance. Most carmakers cover just the basics--jump-starts, tire changes and fuel delivery it you run out of gas, plus reimbursement for towing costs if your car is disabled. But others are more generous. Volvo, for example, provides all the benefits available through Amoco Motor Club for four years, including towing to the nearest Volvo service center, lock-out service and car-rental discounts.

For out-of-warranty cars, your insurance company may offer the lowest rates. Geico, for example, charges about $12 per car each year for 24-hour roadside assistance and up to 50 miles of towing per breakdown. (Geico also has an auto-club-like map and travel-discount program for $14.95 per family.) State Farm charges $3 to $10 per car each year for towing to the nearest repair station and up to one hour of on-site labor.

If you want extra bennies--maps, travel books, travel discounts, bail bond--you'll have to join AAA (800-564-6222; www.aaa.com) or Amoco Motor Club (800-732-9600; www.amocomotorclub.com). The two provide nearly identical services: 24-hour towing to the nearest approved facility, jump-starts for dead batteries, lock-out service, winching if you're stuck in the mud or snow, tire changing, warranties for service at approved stations, and many travel services and discounts. AAA costs $30 to $72 per year, depending on where you live; Amoco costs $45.96 for the first year, then $59.95 per year.

Getting started on a college-savings plan

We are just starting a college-savings plan for our 2-year-old son and have about $5,000 to invest. We looked at Kiplinger's portfolio for "18 years to go" on your Web site, but it takes $13,000 to meet the minimums and portfolio weightings for the funds you recommend. Any suggestions?

--D.S., Santa Rosa, Cal.

With 16 years before you need your first tuition payment, you have plenty of time to build the portfolio (it's in the College Planning Center at www.kiplinger.com/kids). You can begin to diversify with just $5,000: Put $2,000 in Selected American Shares fund, which buys large, undervalued stocks, plus $1,000 in Artisan International for foreign stocks, plus $2,000 in Harbor' Capital Appreciation for large-company growth stocks.

When you have another $2,000, invest it in Royce Premier (undervalued small-company stocks), and put your next $2,000 in Baron Growth (small-company growth stocks). Another option is to sign up for an automatic-investing program. Artisan will let you in with $50 to start; Harbor, Royce and Baron with $500. Selected requires you to put in $1,000 sometime within the first year. When you can add more money, work up to the following percentages: 25% in Selected American Shares, 25% in Artisan International, 20% in Harbor Capital Appreciation, 15% in Baron Growth and 15% in Royce.

Or you can invest in index funds: Put 75% of your money in Vanguard Total Stock Market Index fund, which includes large and small U.S. companies, and 25% in Vanguard Total International, which invests in Europe, Asia and emerging markets. Because each fund's minimum initial investment is $3,000, start with Total Stock, then open Total International.

How to be debt-free (and scam-free)

What do you think of the many debt-consolidation services out there today? Are the companies that advertise on the Internet legitimate?

--NAME WITHHELD

Debt-consolidation scams abound--particularly on the Internet. Some services charge extraordinarily high interest rates or steep fees, and some claim they can fix your credit record (they can't). You're better off with a nonprofit credit-counseling service (the typical charge is $60 or less). Most have debt-repayment programs that collect money from you each month, then send it to your creditors. The creditors, in exchange, often accept a longer term or a lower interest rate.

Two reputable groups are the National Foundation for Consumer Credit, which has more than 1,450 credit-counseling agencies (800-388-2227; www.nfcc.org), and Debt Counselors of America (800-680-3328; www.dca.org).

Before you get anyone's help, consider contacting your creditors yourself. They may agree to spread your payments over a longer period or lower the financing fees.

Next best thing to a fax machine

I've seen ads for several companies that provide free fax services. They give you a phone number where people can send you faxes, and the company forwards them to your e-mail address. Does this work, and is it really free?

--L.L., Baltimore

There's no catch--the companies offer free faxes as a way to entice you to buy plans you pay for that give you more sending and receiving options. With the free plans, you probably won't get a local number (it's often in California or the Midwest, where the services have deals with the phone companies), and you can receive--but not send--faxes.