Color of Money Live

Jun 10, 2010

Need advice about how to handle your personal finances? Whether the struggle is saving for retirement, organizing your bank files, or talking about money responsibility with your spouse or loved one, Post personal finance columnist Michelle Singletary was online to offer her advice and answer your questions on Thursday, June 10 at 12 p.m. ET.

I'd like to pay off a couple of credit cards. If I pay them off and carry a zero balance, will that have an adverse effect on my credit report? Should I pay them off and then use them minimally and pay off the balance each month? I'm hoping to re-finance my house before interest rates go up too much higher.

Good afternoon everyone.

Well, this is a good question to start off the chat.

I get this question a lot and to me it defies common sense.

Paying off credit card debt is always a good thing.

And no you don't have to use the cards at all to boost your credit score.

As I tell people over and over again. The number one way to get a better credit score is to pay your bills on time. It's not carrying credit.

My husband and I bought a home last October. He has substantial credit card debt in his name and before we married, and I had zero debt and I have had one credit card in my name for the last two years. I attempted to get store credit to purchase furniture and was denied. Is his credit affecting my ability to obtain credit? If so how, can I find out?

I'm sorry but you can't blame this on your hubby.

The fact is his credit history did not migrate to your credit file when you got married. His credit history stayed his and yours, yours.

It's probably the purchase of the home. Keep in mind creditors have become a lot tougher on granting new credit. You just bought a home -- a BIG purchase and a BIG debt.

You might also check your credit files. Have you paid any bills late? That could have resulted in your credit denial.

Anyway, when it comes to couples and credit, your history only merges when you have debt together (i.e the house).

I found out that I have been doing my taxes wrong for the last few years. I have consulted a tax preparer and the amendments are all set to go out in the mail. Thankfully I have savings, but this will eat through most of it. I have no debt. Is the IRS more lenient when you voluntarily approach them to revise mistakes?

If by lenient you mean they won't penalize you for the under payments, nope. You got to pay what you owe.

But you won't get jail time or something like that for an honest mistake. The IRS does like it when you correct your mistakes yourself but you still have to pay up.

Sorry.

Hi, Michelle. First, thanks for the great advice in your chats and columns. Both have helped us tremendously. We have finally gotten our family to a better place financially. We are thinking about refinancing our mortgage and home equity line of credit (rolling into one payment with a lower interest rate) and the initial quote shows that it would increase our total mortgage loan amount about $9K with closing costs thrown in, BUT it would also decrease our monthly mortgage/HELOC payment by $250. So that's an extra $250 we could put towards increasing day care expenses that we anticipate next year (and into savings right now). What do you think? Is it worth it to have extra $$ every month although it will extend our mortgage and the total mortgage amount? Thank you for your help!

First, thanks for your kind words.

Now for your question. In cases like this you should do a break-even point. In other words how long will it take for you to get back that $9,000, $250 a month savings at a time.

If you are planning to stay in the house for a while then it's probably going to pay off. So the question is does paying $9,000 now and lengthen your mortgage payoff time worth a savings of $250 a month?

 

Go to bankrate.com. They have a niffy refinance calculator to help you make this decision.

Michelle, is this a really bad time to purchase a new car? Aside from the fact that we did finance the Hyundai Tucson we just bought, we were pretty pleased with the process. We found a brand new, never-bought 2009 base model, with a manual transmission, on the dealer lot and managed to get over $5,000 off the price they originally asked for. We gave my 9-year-old Saturn with 140K miles to my very deserving son-in-law, who was driving a complete disaster of a car, rather than use the Saturn as a trade-in. All in all we were happy but suddenly we're wondering if we should have just kept our Saturn and stayed put. What sayeth you?

I sayeth, it's a moot point.

Really, why worry now? The deed is done. You got what appears to be a good deal and you helped out a relative.

So go enjoy a lovely ride in your new car. Let the windows down, stick your head out the window and let the worry about the deal fly away!

Hello, Michelle. Love your chats! We have a 4-year-old for whom we would like to begin a college fund (I know, I should have started it already...). One of the things holding me back is that I am gaining my PhD and (hopefully!) should have a position at an institution soon -- which means he would be able to go to school where I am teaching, tuition free (assuming he is accepted, of course). So is it more important to put money into a state fund, given that I don't know what state I will be in, permanently, yet? Or just put the money into a regular savings account (i.e. no interest!)? Any thoughts? Thanks!

I would still save in a 529 plan.

It would be great if you stayed put until your 4-year-old went off to college. But what if you change jobs? What if you decide you don't want to work anymore or can't? What if your kid gets accepted but wants or demands to go someplace else?

And with a 529 plan your kid is not tied to the school in the state where you have the plan. Go to www.savingforcollege.com to learn more about how 529 plans work.

P.S. Don't worry that you are just starting the college savings for your 4-year-old. Some people reading this chat haven't started for their kid and the kid might be shaving now.

Hi, Michelle. I'm getting married next summer and my fiancee and I are in alot of debt. We actually live together now and have two kids. There is a break down in communication when it comes to our finances. I've recommended we go and talk to a credit councelor or something, but it's like he shuts down and doesnt want to talk about it. He did agree to go to premarital counceling. I feel overwhelmed, I don't know where to begin to get out off debt. I've tried a budget (from your book) and I'm spending way to much money on my 3 hour a day commute to and from work (parking, gas etc.). I know this is alot of information, but if you could maybe give me some pointers as to where to start to get out of debt and maybe if you know where we could go for counceling it would be great. Thanks!

Wow. Where do I start.

You have a mess on your hands and I don't mean just about the money. Your relationship has some real problems and you are right to be concerned. But as I said this isn't just about the money. When a partner shuts down when you are trying to work out the financial stuff, that's a HUGE red flag. Maybe he's a great daddy but not husband (or living together) material. Communication is so key and if that's a problem now, my dear it won't get better with a ring.

The way to find out if you should get married is take him up on his interest in doing premarital counseling. That's a good sign.

But seriously get he (thee) to a counselor soon before you put a penny down on any wedding anything. For now don't stress about what he won't do. Let this all come out in counseling, which means finding a really, really good premartial counseling course or instructor. Make sure the person or program has a strong financial component.

I do wish you the best.

I wrote in a few weeks ago asking about how to handle a potentially sticky situation. My wealthy father-in-law uses his money to control his realitives (do what I say, I'll give you money; cross me and I'll take it away) and my spouse and I were flying with our new baby to meet him for the first time. The update is, he never offered money (YEAH!) and was incredibly well behaved without threats or snide remarks. It was just a visit without strings, which is what we wanted. A visit without a gift (or conditional offering) has never before happened, so we were thrilled. Now if only we could get him to write a will (leaving money to charity - we don't need it)...

Thanks for the update and I do remember your posting.

And look don't worry about the will. Just be happy, you had a great time and it appears your father-in-law is behaving better. That's a start.

 

P.S. If he's as controlling as you say, I bet he has a will already telling you just how he wants his money used :)

Thanks, Michelle, for your advice. The checks are ready to go out in the mail. This is why I had a "life happens" savings account! Plus, I recently got a new job, so I am planing to quickly build it up again.

Wonderful!

Got to love the life happens fund...cuz life always happens and it's often very expensive.

Michelle, about eight months ago I asked you for advice about dealing with the agonizing pace of the modification process. You advised us to sell our home. We just weren't ready to do that, and we kept with the bank's plan. In March, we were still trying to work our way through it, and I was so frustrated that I filed a complaint with the Comptroller of the Currency (who oversees FDIC insured banks) about the fact the bank was making us do things that weren't required by the regulations, and seemed designed to force us into foreclosure. Less than a week after I filed the complaint, our modification was suddenly approved, and a week after that I got a letter from the bank in response to our complaint noting that our modification had been approved. I have no doubt that if I hadn't filed the complaint, we would have had our application denied and been forced into foreclosure. I'm sure this is why foreclosure rates have remained high. The banks are putting people in positions they can't pull out of, dangling the promise of a modification like a carrot when the bank really intends to use a stick.

I'm glad this worked out for you.

And I hope I said sell if in the end you couldn't afford the home or the new modification rate.

It does show that it pays to do everything you can to advocate for yourself.

Michelle, my husband and I are debating the best way to pay for some needed repairs on our house. We are young retirees, just turned 60; I have a governmentt pension and he works part-time. We have substantial savings, but 80 percent of it is in the government TSP and our individual IRAs, which we don't want to tap just yet. If we paid for some needed renovations with cash, that would wipe out half of our non-tax-advantaged savings. If we took out a loan, the servicing costs of the loan could be paid for by what our investments are currently earning. So which sounds like a better approach: Use our cash and then re-build the savings, if possible, from our limited income, or take out a loan and pay it off with (hoped for, not guaranteed) earnings from our investments?

Cash, baby cash.

If you take out a loan the costs will increase with the interest you pay.

 

And as you point out there is no guarantee your investments will return x amount, or that your husband will continue to work part-time.

If you have the cash, don't use debt.

My mother has a small amount she wants to give to my daughter for college. My daughter will be a high school junior in the fall. What type of savings account would you recommend? The amount is $5000.

Since your daughter will soon be going to college, best not to invest the money  because you don't have a long enough time frame to whether market ups and downs.

Find the highest yielding savings account and park the money there. Check with your bank, credit union, online only banks, etc. Bankrate.com has a chart listing saving rates around the country.

Hi, Michelle. Can you please give some advice on how to locate a good tax advisor. I have some questions specific on retirement planning so I'd like to find someone who specializes in those tax rules. Thank you!

I've always found professionals by asking friends and family or co-workers. So ask around.

We have two kids under the age of 5 and have been aggressively saving for their college using several 529 plans (state and another fund, for diversification). However, the recent market collapse has caused us to suffer some losses, to the point that some of our principal is now gone. What should I do? I can't sleep at night.

If you really can't sleep then perhaps you shouldn't be investing. Investing means there's a chance you can lose the principal.

OR maybe you could put some money in a savings account or CDs so you don't fear the risk.

But please know this is what happens with investing. There are ups and downs (even some downs that eat at the principal).

All my investments accounts lost money, some below the principal. But most if not all have jumped right back up. If I have panicked (I'm thinking of one in particular) I would have locked in my losses a year ago. Now that fund is back up and then some.

Dear Michelle,

I have enough money to buy a studio in D.C. (with a 20 precent down) but not enough to buy a one-bedroom. Everyone tells me that the resale value of a studio makes buying one not a good investment. However, it will be another 10 years for me to be able to buy a one-bedroom. I'm sick of wasting money on rent. What's your take? Thanks!

This is a hard question because it involves a lot of guessing.

I bought a two-bedroom condo in Baltimore in an area not known for condos. When I finally moved it was HARD to sell. I never made money on the place. But for more than 15 years I either lived there or allowed my disabled brother to live there. So I didn't care that I didn't make money on the place when it finally sold.

If you want to buy and you love the place, and you think you will be there for a decade or more it might be right for you now.

Yes, you should think about the resale, but also think about your needs and what will make you happy.

Also, one point. You are NOT wasting money on rent. You are paying for a roof over your head and that is not a waste.

Hello! Is it possible to roll two people's student loan debt into one big loan with one payment? My husband has already consolidated his once, but I have not. We owe about 36K, and we pay his down faster than mine since it has a higher interest rate. But we'd rather just pay down one big loan. Thanks

Generally experts say it's not a good idea to consolidate your student loans with your spouse. If you have federal loans and if you die, your estate is not responsible for the student loans. But i consolidated your loans with your spouse, he or she will still need to pay them back. 

I am building an emergency fund. It is going well but a little too slowly. I feel a need to pick up the pace, just to get a foundation. I think I have two options: 1) cut back on my 401(k). I've got about 200k there now, plus a pension that will replace more than half my income, plus social security (15-18 years away). I might be better off in retirement than I am now. I think I could take a holiday for two years to build up the emergency fund. Once I get a bigger cushion I would redirect money back to the 401(k) 2) and temporarily stop making payments on my HELOC. I have that option under my loan. I could let the interest accrue. The rate is really low: less than 2 percent. If it goes up I can always dip into that emergency fund. The payoff date is about 20 years in the future and the debt isn't that high ($35k). And if I don't have an emergency fund when I need one, the house is toast anyway. Unappealing options, perhaps, but that's what reality is like sometimes. I'd be curious what you/your readers think. Thank you.

First, I wouldn't let interest accure on the HELOC to save for an emergency fund.

Second, calm down a bit. You are in a rush and whenever people are in a rush they make mistakes.

Building up savings takes time. So take the time. And frankly now that I'm helping an elderly relative I'm not sure most of us will every really have "enough" for retirement.

So just keep saving for the emergency fund and in your 401 (k). It everything else is stable, have faith and keep plugging away at that emergency fund.

Hi, Michelle. Thanks for your columns and advice. My parents have been caring for my grandparents (both sets!) for a good 25 years. Your advice so far has been right on. I'd add one thing: Financial planners told my grandparents to start using their long-term care insurance immediately upon moving to a care center/nursing home. Lots of people want to hold their insurance in reserve, pay out of pocket for the first few years, and in the end only use a fraction of their policy. This has worked well for our family. Best wishes for you and your family. Caring for elderly relatives is an extraordinarily loving thing to do, and no matter how good your relationship with your parents, it is very challenging as well.

Thank you so much for your comments and tip.

You people do not get that some people do not have family or friends and do not trust co-workers. Where do we go for advice?

Really, so you are saying there isn't ANYONE in your life that you can ask for advice on a tax professional or any professional?

That says more about that person, I think.

You are only asking for recommendations. You don't have to like the people you are asking. Besides, if you make blind calls, how likely are you to know how good someone is?

But if you insist call a local tax group chapter. I need a elder care attorney, so I asked the attorney who did my will. He said that wasn't his speciality so he recommended someone else. This is still the best way to find the best people.

Hi, Michelle. Is it possible to open up a Roth in someone else's name? My husband and I want to start a Roth for his sister, who is graduating next year. Thanks.

I'm not sure you can open a Roth for someone else. To open a Roth you have to have "earned income" and meet certain income limits.  Now you may be able to open a Roth and then at some point give the money from it to someone else.

But in this case why don't wait until the sister has a job or find out if she has enough money now to open a Roth herself. Then you can give her money that you ask her to put in that Roth.

Babies -- they really are great aren't they? They often mellow the crankiest and make life relevant to the previous petty.

Kids can do that. Wonderful little people -- well untl they become TEENS!!!!!

My bank offers this service for free and sessions with a financial advisor any time I want. Check it out before you pay someone else.

Good point. And another way to find a professional. Ask bank folks.

Love the new photo of you at the top of the page! Awesome!

Oh how nice, especially since I'm three kids and almost 19 years into a marriage. Thank God for lycra and spandex!

What are some good ways to stay out of debt? I can't seem to stay on the the right side of things. My credit score is amazing (800), and I pay my bills every month. But every time I manage to pay things down to 2-3K, the next time I look, I am back up to 7-9K. I try to use cash, but I don't have it when I have to pay the bills. I don't want to pull the money out of my savings when it doesn't seem to do any good. I don't want to not have money to fall back on in case something happens with my job, or, like the earlier poster, I have a major bill to pay to the IRS or something unexpected. I am not saving much money a month beyond my 401(k). I really am not sure what steps to take to save myself.

One word, budget!

You need to build a budget in which you save to pay for the things you keep putting on credit. So I'm guessing you don't have an emergency fund or life happens fund?

Try it. Saving I mean.

Try taking the credit cards out your wallet. Freeze them.

And if I might be so bold, get my latest book "The Power to Prosper." In it I ask people to do a 21-day financial fast, which means no spending on anything that is not a necessarity and no CREDIT or DEBT card use.

People who have bought the book and faithfully followed the fast have seen their savings dramatically go up. Each day of the fast I give you inspiration and exercises to help people just like you -- you are cycle debt users.

Actually, here's something else that might help.

I have a saying, "Every penny ought to have a purpose."

If you  plan for your money, the money you work hard to earn, then you won't waste it on buying stuff on credit that you probably don't even remember.

Make every penny count. Have a plan for your money, your financial future and that may help reduce your cycle of getting into and out of debt.

I want to retire before I need a walker. I want to send my kids to college without debt. I want to give to my church and charities. I want to help others in my family go to college. I want to take nice vacations with cash and not come back to credit card bills.

See every penny I earn have a purpose in my life.

Do you have to be a member of your church to participate in the financial ministry? Thank you.

The ministry is Prosperity Parnters at First Baptist Church of Glenarden in Prince George's County.

And no you don't have to be a member.

We meet every month and I conduct workshops on a variety of topics. For June we just finished an amazing workshop on kids and money. We tookt them thu some real life budgeting exercises. The testimonies of the kids afterward were just precious. A college student said she finally understood why it was important to budget and how much stuff cost.

In July (the second Sat. from 10 to 1 p.m.) we will be talking about family, friend and finances. It's all about handling your money with your spouse or sister or triflin brother, etc.

It's a great session.

Hi Michelle, Two questions. I am 30 years old, and I contribute about 2 pecent to a TSP now. This is because I am aggressively paying off student loans. However, I was calculating the numbers and I think I might be able to contribute up to 3 percent and be comfortable. But I wanted to know what you think or if I should bite the bullet and do 5 percent, which would mean saving less for some things I was planning for. In addition, I have a Perkins loan which I am now aiming to pay off first. I wasn't at first, but it is ironically the highest interest rate among my loans because my private loan's rate took a dip (because of the economy most likely) and it's also the smallest balance. I was holding off because I was wondering if any new laws might pass offering more loan forgiveness for Perkins. I don't qualify for the current programs so I might as well just pay off instead of waiting for a gift. Please tell me to do it.  I need the motivation because I've been concentrating on my private student loan. Thanks so much. Love your chats.

Since you are still young, just get rid of that student loan debt. Kill it. Stomp it.

It's not good debt. So stay the course with your TSP. Take the money you would have contribute and go after that debt like bird diving for a fish. And by the way you are right to go after the debt with the smallest balance.

For what it's worth, I recently sold my D.C. studio after less than a week on the market, and I made money on it (and lived there less than a decade). Who is "everyone" that is giving you this advice? I would take it with a grain of salt unless they have actual experience in this area. When I bought my studio I heard similar opinions, which proved to be wrong. The key to resale, in my opinion, is no different than reselling other types of real estate. Location. There are certain DC neighborhoods which will always be in demand and a studio is just as good an investment as a larger condo.

Amen. And good advice!

Hey, it's after 1 already.

Anyway, as always thanks for coming by and joining me today. What great questions. And tips.

Don't forget I'll be back next week, Thurs. June 17th, for the book club chat. Talking about student loans. See you then.

In This Chat
Michelle Singletary
Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday. Her award-winning column is also carried in more than 120 newspapers. In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges.
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