Personal Finance: Strategies for tackling consumer debt

May 13, 2011

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 offers her advice and answers your questions on Friday, May 13 at 1 p.m. ET.

Hi everyone,

Michelle is running a little late, but she will be here at 1:15 to start taking your questions.  Stay tuned!

So sorry for the delay. Couldn't be avoided but thanks for hanging in here with me. 

So let's started.

Hi, Michelle. Just wanted to say l love your video chats! Also, you are much cuter in person than your picture indicates!

Oh how sweet. Thank you. 

I really love doing the live video chats. It's hard for people to get your tone when you are writing. The live me doesn't sound as hard.

If you haven't viewed the chats and can, please do. Would love more feedback. I'm hoping one day we will be able to have people send in video questions that I'll use.


Hi Michelle, I enjoy your chats and think you give great advice. I also understand that time constraints can affect the quality of your answer, so I hope you will take this in the right way. In the last chat that I can find on the WaPo web site (mid Feb), a reader asked whether they should apply their $20K savings to their $20K credit card balance or to save it as a down payment. Your suggested answer was to pay down the debt. But the concern I have about your advice is that 100% LTV loans are no longer available. Thus, if they pay down the debt, they also rule themselves out of qualifying for a mortgage. Yet this might be a good time to buy a house (pricewise and interest-ratewise) and perhaps their $20K of credit card debt has payment terms that would be manageable even in the context of a mortgage payment and all of the extra expenses that go with owning a house. I'm not suggesting that they load themselves up with more debt than they can handle, but that perhaps there are situations where paying down credit card debt with available savings isn't the right answer. I say this as someone who has never carried a credit card balance, and who paid cash for his house (after saving/investing for 18 years to do so).

I take no offense at all. I understand your concern. I also understand that for buyers right not the market is great.

But here's why my advice is so different than others -- and your suggestion.

I want people to walk into their homes as debt free as possible. Frankly, people aren't getting 100 percent loans anyway not even with FHA. But even when they could, was that always smart? We know that when people put something into their homes they aren't a likely to walk away from that mortgage. It's called having skin in the game.

But let's put that aside for a moment. 

You yourself didn't or don't do what you think I might consider telling people. You don't carry credit card debt month to month. You paid CASH for your home.

I want that for others too. 

We borrow too much in this country.

We borrow in a hurry in this country because we think a good deal won't be around long enough for us to pay cash for it.

But guess what?

Cash is ALWAYS king.

Even in a buyer's housing market, if you have debt I still say get rid of your debt before piling on top of that debt the largest amount of debt you will probably have in your life.

It reduces your risk.

If I negotiate a loan modification with my mortgage lender, will this adversely affect my credit score?


As long as your lender agrees to change the terms of your contract -- in this case your mortgage -- and you pay your mortgage as agreed it should not affect  your credit score.

Hey Michelle, I'm in collections for a couple accounts due to surgery from a year ago. Ultimately, I want to pay the money, but I would rather pay the company I owe the money to, and not the collections company. Is there a way to do that?

You can contact the original lender and see. But it's probably not likely since they may have sold the debt to the company trying to collect. 

But make a few calls and see. It's possible they have not sold the debt and are using a company to collect for them.

However, in the end try to spend your time negotiating to settle the debt with the first creditor or collection company so you can move on with your life. If you've managed to begin saving again and have a lump sum of money you have a better chance of negotiating to pay less than you owe. How much, you might ask?

It depends.

Your debt is relatively new so they may not take pennies on the dollar but you could see if they would go for 20 or even 30 percent off.

Good luck.

I heard you on the radio maybe a month or two ago (WGTS) and you seem like such a kind, warm person, along with being very smart. I really enjoyed listening to you!

Wow, thanks again. You guys have no idea how wonderful it is to get such compliments. I really, truly try to help folks. Sometimes I'm hard but that often comes from dealing with people in debt and financial trouble who could have avoided their plight if they had only sought help before they may a bad decision.

Anyway, thanks again. As I said earlier radio, TV and video chat allow you to feel what I mean. Plus I'm straight up crazy in person. I love to laugh. Makes giving out this harsh financial advice a lot easier to go down.

My local newspaper no longer publishes "The Color of Money" in the Sunday editions. I really miss reading them.

Well, I need you to start a campaign. How dare they take away my column from you.

Really, I just don't get it. At at time when people need good, basic financial information one would think such a column would be the last to go.

So please, call the editor. Get your friends to call and write.

You can get me back!

My stepson is about to graduate from college. My husband saved up $10k for his graduation gift. He is conflicted about it. Part of him wants to keep it "safe" in something like a 7-year CD so he won't go blow it. But he realizes then it's not really a graduation gift. I suggested giving it to him with a sincere, but not overly patronizing talk about how it's a sizable amount of money that he can do anything with, and that hopefully he'll both have some fun and make some wise decisions about savings and investing. This led to a conversation about - heck - we are only 21 once, and we never had the chance to take a few months off and backpack Europe, so really, what's wrong if he did this, blew it all, but at least got to have a wonderful experience (although no $ left in the pocket). What advice would you give a 21 year old college graduate when you give them $10k?

Good problem to have. First (and send me an answer if you don't mind), does the stepson have ANY student loans?

If so, use every penny of that $10,000 to help reduce or get rid of that debt.

Second, is the young man going to need to rent an apartment or have expenses around his new job?

If so, I would designate some of the money for that?

Does he need a car?

Would he like to get a house in a few years whereas $10,000 would go a long way toward a down payment?

See I'm practical. And while I agree that you are only 21 once, I also know that your $10,000 gift can put that young man on a great financial road.

Don't temp him to just blow the money. Help him use it wisely, so that one day he can take a vacation and with no debt travel the world.


Hi Michelle, Just a comment on why saving money is so important. We just bought a home and 2 days after we moved in, the sewer pipe broke.  It costs over $10K to fix it, but since we have that in savings, we do not have to take on debt (the plumbing company offered us financing at 26.99%!!!!). So it stinks having to fork over all that money, but at least it's not debt.

"It stinks...." 


Pun intended?

See, this is what I'm talking about! Folks go back and read that question about having debt when you buy a home. If you have debt and something like this happens then you are deeper in debt because you have to borrow to fix whatever.

Great testimony. 

I am a single mother of two kids on disability, but want my kids to go college. Is it too late start college fund for them?

It's never too late to save whatever you can.

But can I be honest?

Unless your children get a full free ride, you may have to think differently about how they can go to college. 

With your limited income no one would fault you for not being able to save enough to send them to college with no debt.

But that also means you can't give them a blank check and say, "hey kids go anywhere you want, we'll just borrow for it."

They should apply to where ever they want to go, but if they don't get money, encourage them to stay instate, live at home or go to community college for the first two years. 

You have to be realistic with yourself and your children as to where they can afford to go to college.


I wish you well.

Hi Michelle, My boyfriend and I have been talking a lot about marriage and our future. We are both law school grads, and where I have been extremely fortunate to have a job, and zero debt, my significant other has not been as lucky. I understand that the economy is tough, but it just makes me really apprehensive that I will have to handle his debt. We have talked about it, but if he doesn't find employment, I will be the sole income and that scares me a bit. I don't know what to do.

It's a common problem these days. And I'm so glad you guys are talking about it now before you say, "I do."

And you have the right attitude. That WILL be you debt. It might not be legally but it's still yours because as you realize the pressure will be on both of you.

If you are uncomfortable about the debt then perhaps your gut is telling you to wait to get married until the debt is down or cleared up. Maybe it's telling you, you don't want to have this huge issue at the beginning of your marriage. 

And you know what?

It's okay.

I would rather you delay getting married because of it then get married and resent the debt and eventually your husband.

Talk some more. Maybe you can come up with a plan to help your boyfriend figure out how he will pay the debt and not bring it into your marriage. For example, he could live at home or with a relative and the first few years after law school throw every penny he can at the debt to pay it off.

Just one idea but you see what I mean?

Hi there, I drive an SUV, I have 3 kids and a big hubby.. so I can't downsize to an overpriced hybrid. However, now that gas continues to rise, I can't afford to go to work because it would involve using too much gas to drop off the kids and go to work. I've been calling out sick, and I tried requesting to work from home, however as an EA.. there really isn't an option for my supportive role. Any suggestions on how to talk to my boss? I really love this job, and it's very embarrasing to admit you can't afford to put gas in your car. The location isn't Metro accessible [and I can't pay for 3ppl to get on the bus then train then back to the bus --one way]. This recession is drowning me. Any help would be appreciated!

First, stop calling in sick because my dear you may be jeopardizing your job. As someone with an assistant I would not take that for long especially if you aren't sick.

So you are going to have to do some extreme cutting to make up for the higher gas prices.

Go back to your budget. Cut deep. Cut cable, cell phones, eating out, etc. (Do the kids have cell phones? If you're like many families they probably do).

Trust me for most people there is room to cut. I've worked with people with kids, bills, etc. and even so I could find some fat.

Michelle - I am almost 64 years old and single. I have a Section 8 subsidy in Montgomery County. I hate to give it up at my age. I do have assets and if I take a job that pays over $34,000, I will lose the subsidy. With a $1,000 (or more) rent plus a modest lifestyle (public transportation, little spent on donations or social life) I would not have much left over to save, etc. Any thoughts? I work as a substitute teacher. I am in great health and have no health insurance until I am 65 Thanks.

Why do you have to give up the subsidy? I'm not clear or maybe I'm missing something. 

If this is about taking a job paying more you have to weigh if the extra income AFTER taxes makes up for losing the subsidy. If it doesn't then you have your answer.

Let's said you need (or perhaps want) a new couch. You've diligently saved the money to pay for it in full at the time of purchase. You're at the store and the clerk offers a 0% financing offer for say, 6 or 12 months. IF the payments are made to pay it off completely within the interest free period, do you recommend that approach and keep the saved-up money in savings for other uses/safety net? Does your answer change if the offer requires you to open a new line of credit?

Pay for the couch. Yes, you can take the deal and what make maybe $2 in that time in the bank given the pitiful interest rates they are paying?

Don't do it if you have to open up a line of credit, which is usually the case.

The problem with these deals is A LOT of people don't pay it off in the time frame, even some folks with the cash. They forget or neglect to watch the clock and the BAM they are hit with 29% or 30% interest for the entire six months or 18 months or whatever.

Don't play the game.

Buy the couch with your cash.

A friend (not a relative) wants to give us a large cash gift. I'm wondering if there are tax consequences. Do we need to account for this money on our income tax returns? I know you're not a tax lawyer but you usually have money-related answers. (I don't mean to sound ungrateful -- we are very grateful -- I just need to know if we should allocate some of this money for taxes.)

It's the giver who may be responsible for the gift tax.

But you can always double check at

I have finally decided to change my exemptions. I am not sure if I should use the Married or Married at a higher rate. Which should I use. Would going on help? Thanks.

Go to and search for the withholding calculator.

You'll need this year's tax form and it will walk you though what to do.

Michelle, I received an unexpected inheritance that is enough to pay off the mortgage on our house with some left over. My husband wants to invest the money thinking that we will end up better off in the long run. He's got charts and spreadsheets to prove his point. My point is that I want the peace of mind that comes with no mortgage! We can just change the destination of the mortgage money to an investment account. How can I persuade him?

Tell your hubby for me, he's wrong and I don't care how many spreadsheets he comes up with. None of those sheets can GUARANTEE  a return.

See that's the point. Paying off your mortgage there's no risk. Investing that money there's plenty of risk.

And you are right, you can invest the money you were using to make mortgage payments. 

Also ask him does his sheets include all the interest you will save.

Talk to people who are mortgage free. They will tell your husband it's the best decision they made. Some fear they will be house rich and cash poor. But that's not your situation. You will still have money. You will still have whatever you are saving.

Peace of mind is priceless.

Hi Michelle, What do you think of the "extreme couponing" trend? I'm torn. I like the *idea* of using coupons to buy things you need, but it seems those folks just buy lots of stuff they don't need and will never use. Also, I think it's sketchy to say that if you get buy something and get a coupon for a future purchase in the same amount, the item is "free." You still paid money to get it, and if you don't cash in the coupon, the store makes out.

I agree with you. I've watched news reports and talk shows with these people with their pantry full of food but to what end?

Done right coupons are great but I still think for some it promotes more consumption when you don't "need" the food.

Hi there, Is it wrong to tell my bill collectors that I'm paying ANOTHER more priority bill? I guess I'm just wondering. One Visa has already been closed, therefore.. my one remaining Visa takes priority no matter what the threat is. Unemployment does nothing, let alone actually pay a bill. So in essence is HONESTY the best policy, in your opinion?

Honesty is always the best policy. But you owe both companied regardless if one account is closed. 

Are you paying the one company because you can then use that card?

Right now if you are on unemployment, pay only what it takes to keep food on your table and a roof over your head and needed transportation.

Maybe you can strike a deal with both credit companies to payment something on both.

Hi Michelle, I have about 3 months living expenses in my emergency fund, and several thousand over that same amount in credit card debt. Most of that debt is at a 3% or 0% interest rate. Should I use some of the emergency fund to lower my credit card debt?

If you are relatively sure your job is secure, you could reduce the emergency money to say one or two months and take the difference to pay down the credit card debt. Then aggressively do what you can to pay off that debt.

My big husband and 3 kids fit in my Honda quite fine. Choices, people, choices!

Good point.


Hi Michelle, thanks for your thoughtful answer to my question. You're right on many fronts (especially that we as a society borrow too much). In my opinion, though, homeownership is generally a good thing for society. I was a conscientious renter but I know my neighbors now better than when I was a renter. (That's not the only measure of good society but you probably see what I am getting at.) And I have been very lucky to have a high-paying job that would enable me to pay cash for my house. Not everyone has those chances, right? So I guess that's why I took the stance that I did. ANYWAY, we're on the same page here. I think I am allergic to debt but I can also see the value of granting credit to enable people to buy the roof over their heads (even if it takes 30 years to do it). ;-) with peace and respect too

As my husband often says, we are in violent agreement.

Where we differ is taking debt into a home.

A home purchase is right when you aren't dragging debt into it along with your furniture.


Should I take out a larger student loan to pay off credit card debt? I am back in control of my finances for the first time in years and am looking to get out of the massive crushing burden of the credit card debt. Thanks for any advice.

Do NOT take out more debt to pay down debt.

Student loans carry some powerful hammers if you find you can pay them. Much bigger hammer than that credit card debt.

Don't do it.

Take your time to save, cut expenses or do whatever you can to pay off that debt. First step. Put the cards away and don't use them at all until you pay them off.

I'm so, so sorry I have to go.

I'll hold on to the leftover questions and I may answer them in a number of ways, via my weekly eletter (which I hope you subscribe to), my video chat (next one is May 19) or in my print column.

As always thanks for joining me today for the chat.

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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