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Color of Money

Color of Money Book Club

Personal Finance

Michelle Singletary and Jean Chatzky
Washington Post Business Columnist and Guest Author
Wednesday, December 15, 2004; 12:00 PM

Are you in holiday debt? This month's Color of Money Book Club selection is "Pay It Down!" by Jean Chatzky, a columnist with Money magazine and contributor to the "Today" show.

According to Post personal finance columnist Michelle Singletary's column, To Cut Debt, Consider the $10-a-Day Plan, Chatzky's "get-out-of-debt plan is simple: Find $10 a day out of your regular expenses, and you can pay down your debts in less time than you think."

_____Michelle's Column_____
The Color of Money

Singletary and Chatzky was online Wednesday, Dec. 15, at Noon ET. Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

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Michelle Singletary: Hello everyone and Happy Holidays. And what a perfect topic for the season considering so many people overspend this time of year. I'm thrilled to have Jean back with me. I do hope many of you have had a chance to pick up her book. But if not, there's still time to pay down your debt. So let's get started because there are lots of questions.

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Fort Washington, Md.: Cut debt ideas buy a car you can afford rather than LEASE a car you can't afford to buy; get rid of cable or get the basic basic for reception only; go the library (it's free); find FREE stuff to do instead of shopping; stay home and enjoy your home; fix a cup of coffee and use your best china (why leave it for your adult children to sell at an estate sale or break); make a LOCAL call to a friend; write out Christmas cards and hand deliver to your neighbors; plan not to spend any money for one day and cope (I do not mean not paying your bills!!); seduce your spouse;

Most importantly, find out why you feel like you must spend money. Getting in debt is like being overweight. It takes work to improve.

Michelle Singletary: These are all really good ideas!

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Christmas Club: Hi. Can you tell me if old-fashioned Christmas Club accounts are still available at banks? Seems like they've moved away from anything that's not profitable for them. Do you know if you can still open a Christmas Club account, or do you have to do it all on your own?

Jean Chatzky: I haven't seen original "christmas clubs" in quite some time. But the great news is that it's become really easy to follow the same idea with automatic money transfers through an online banking account. You can simply elect how much you want to transfer into savings on which particular day each month. . .and know that it will take care of itself. You're on the right track!! Good luck!

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Germantown, Md.: Do you know anything about an Investment guru by the name of Kim Snider and her investment method called SYGMA? A close relative sings their praises and is touting this as a solid investment opportunity.

Thanks!

Jean Chatzky: I'm so sorry. . .but I don't. But you should never EVER hire any investment advisor on a single recommendation alone. Always get references. And always go through the step of checking that person's backround with your state's securities commission and the NASD.

Michelle Singletary: And if I may add...just because someone has been recommended by a relative shouldn't give them a green light. As Jean said, always, always do your own homework and verify everything the investment person says.

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Buffalo, N.Y.: Hi, what should I look out for in taking on a new credit card, "fixed 5% rate" for instance?

Thanks.

Jean Chatzky: If you can find a rate that's fixed at 5 percent by all means take it. You want to look for a card that's got a low rate not just for the next 3 or 6 months -- that's just a big tease and not enough time for most people to make any sort of dent in their debt -- but decent over the truly long term. Also, make sure that the card offers you a decent 25 day grace period on payments. And, if you're the type of person who pays off their balances month after month, frequent flyer miles or some other perk certainly don't hurt.

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Washington, D.C.: I'm a Controller who is quite organized yet due to helping out others, my credit has plummetted.

The debt to equity is bad, and my FICO is a depressing 550. I use Quicken and I've outlined my plan to improve my score by paying down debt and paying on time...any idea how long it typically takes to improve a credit score. I'm single and 37, and worried my score is not really gonna' go anywhere until I'm about 44 or 45?

Any other suggestions, or must I just maintain my plan for the next 7 years?

Jean Chatzky: Don't worry. . .it doesn't take as long as you think it would. You can improve your credit score in a 6 to 12 month time period. The most important thing you have to do is pay those bills on time. (If you're having trouble with that, use your Quicken interface to set up automatic bill payments online). Also, take a look at each of your balances in relation to each of your credit limit. If any of your individual cards are close to being maxxed out those are the ones to concentrate on paying down first. AND do not. . .I repeat. . .DO NOT apply for any new credit at this time. Good luck!

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Washington, D.C.: Hi. I just signed up for a non-profit debt consolidator. So far, so good- I'm pretty happy with how low my new interest rates are right now and I finally feel like I'm making some headway on my credit card debt. Any thoughts on making the most out of a debt consolidation process?

Jean Chatzky: Yes. But first of all, good for you. Taking the step of going to a counselor and finding a good one is a really brave and important move. Second, in order to succeed you need to stick with it. It takes, on average, 4 to 5 years to make it out of consolidation with your bills paid off successfully. Most people do not make it. But, with perseverence -- you can. And should you have additional money along the way, sock it into savings in case you ever get into a similar jam.

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Washington, D.C.: Greetings!;

Starting a couple years ago, I've let my credit card balance get a little (okay, a lot) out of hand. I also make student loan payments. My question is: would it be smarter to devote more of my disposable income toward paying down the card, or should I be trying to sock away more for retirement? I'm unsure what I ought to be doing first.

Many thanks!;

Jean Chatzky: the question is. . .where are you going to get the bigger payoff and my guess is with investment returns kind of anemic, the answer is going to be in paying off your credit card. think of it this way. . .if you are paying off credit card debt at 16 percent, that's actually the same as earning 16 percent on some other investment. And in anyone's book that's a pretty awesome return.

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Washington, D.C.: I read your article on $10 a day. This is defintely the time of year to trim back on a lot of expenses! It's the little expenses that add up -Oil change, gasoline, dry cleaning, your son's extra cell phone minutes, and so on.

Also, are you allowed to recommend a good budgeting software program to watch your expenses and other finances?

Thanks!

Jean Chatzky: yes, i'm allowed. i like quicken. that's what we've used in my house for a decade and it still works just fine.

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Silver Spring, Md.: I bought my little sister Jean's book for Christmas. How can I give it to her, and talk to her, without her thinking I'm trying to run her life. She has about $5000+ in credit card debt, but just moved to an apt. that's $120 less a month, and got a decent raise at work. Now, she says, she can get cable and join a health club. I want to convince her to save at least $50 a check, and pay her bills down. Thanks for your advice. I love Michelle's columns.

Jean Chatzky: Tell her you talked to me online -- in fact, print this out if you want -- and that I said this is her big chance! This is her chance to build a financial future that has some staying power. . .it's a chance not enough people get and not enough people make the most of. And tell her that I believe, as you believe, saving $50 a pay period (or even better $10 a day) is the key to success. And tell her I said everyone should have a sister like you!

Michelle Singletary: I couldn't agree with Jean more. And also tell your sister you're not judging her or trying to tell her what to do. In fact your purchase of Jean's book is an act of love. You are giving her a tool to help her get her finances straight and that is an awesome gift.

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Washington, D.C.: Hi,
I am applying to grad school for fall '05, and was told at a college financing workshop at work that a 529 plan was worth investing in. I know that it won't be enough to pay for all of it, but was told it was still worth it. (I will look into other ways, scholarships, loans...) Is a 529 still worth it? I think I may only be able to contribute about $200/ month. But I figure, I will be in school 2-3 years or so, and I am thinking that whatever I don't use can be a head start on savings for an education for my (future) kids. Is my logic right on that?

Along that vein, I enrolled in UPromise and am thinking of getting the Citibank card that they offer that gives back up 10% of purchases that can then be rolled into a 529. But I worry about somehow harming my credit. I only have undergrad loans, and pay off my Ccard debt every month. Think it's worth it?

Finally, I have ~$3400 in student loans. I can dip into my savings (which will leave me with ~5 months of emergency savings) and pay it all off, and in turn put that money into the 529. Think it would be worth it?
Sorry for the long question, but I'd appreciate your help!

Jean Chatzky: hey. . .that's quite a few questions. let me see if i can tackle at least a couple of them.

first, as far as the 529 goes. . .you want to be able to draw on your money for your education. . .and get the tax benefits. if you're only able to put away $200 or so a month, you'll get more flexibility ifyou put the money in a coverdell education savings account -- or even better, a roth IRA. with the latter, you'll be able to use the money for your own retirement if you don't need it for school, which should be a higher priority than your kid's college.

second, the upromise credit card won't hurt you unless you don't pay your bills on time. it's a fine way to go. . .although i don't think you get 10 percent back on all purchases, just grocery stores and gasoline, so read the fine print.

finally, no -- don't dip into your savings to pay the student loans. student loan rates are really low right now, make sure you've consolidated so that yours are as low as possible, then leave your savings where it is for emergencies and pay off the loans on your regular schedule.

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Silver Spring, Md.: My wife and I have a considerable amount of consumer debt and student loans that were consolidated in the early 90's and are locked in at very high interest rates. We have relatively high incomes and have owned our home for almost 10 years. Right now we have enough equity in the house to get a home equity loan that would push payment of the other debt over a longer period of time and at a lower interest rate. How would having a rather large home equity loan with very little other debt then affect our ability to purchase a new home in two years? Will just the existence of the home equity loan negatively affect our ability to get a new mortgage assuming we have money for a down payment and lower overall debt by then?

Jean Chatzky: A home equity loan is a second mortgage. So, when you sell your current home in order to buy the next one, you'll need to pay back debt that is owed against that home -- not just your first mortgage, but your second. Anything that is left will be profit, and my guess is, downpayment toward the next plce. What you really need to look at is whether the existance of a home equity loan at that time will get in the way of your being able to buy the bigger, more expensive home you want.

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Virginia: What if you've had debt for a long time? And, if its less than $5000, what can they do to you? ie, lawsuits,legal action? Thanks!

Jean Chatzky: They can -- and eventually will -- pass your debts on to a collection agency who will make your life miserable with phone calls, nasty letters, etc. If it's been a very long time and you're sure you'er not going to be able to pay back all the money, you should call the creditor and see if you can negotiate to pay back a leser amount -- a credit counseling service may be albe to help you with this.

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Chicago, Ill.: Hi Michelle & Jean:

I currently use 3 credit cards. The first one I pay off the balance each month. The second one has a balance of 13K at 0% til paid off with a credit limit of 15K. The third one has a balance of 8K at 0% til 11/05 with a credit limit of 15K.I am still allowed to make a balance transfer on the third card at 0% with no transaction fee till 11/05. I have a 5K balance in a home equity and I plan on paying this off within a year. I have no other debts except for a mortgage.
Is it wise to do a balance transfer using the third credit card to pay off the balance in home equity or will this hurt my credit score because I will have a high balance on the two credit cards?
Thanks for your advice.

Jean Chatzky: If you're planning on paying off the balance on the home equity within the year, I wouldn't transfer the balance to a third card. But I would be working very very hard to eliminate the $20K in total debt you've racked up on the other two cards. It's terrific that you've managed to lock in zero interest for such a long period of time. But right now is when you need to make the most of it.

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Richmond, Va.: I must say, I am a pastor at a church in Richmond and I read you both RELIGIOUSLY! I think you offer down to earth, practical advice which is a potential blessing to people. Thanks! Ms. Singletary, I have even read a part of one of your articles in a sermon once where you told a story about your grandmother. People really respond to that sort of illustration. As a pastor I see many people in slavery to debt. Obviously, I can give them spiritual advice and counseling. Most of these people started out with bad financial habits when they were children and teens. (Mostly received from their parents!) What solid advice would you give 13 to 17 year olds about money, debt, etc??

Jean Chatzky: I think the most important lesson childrens and teens can learn is that resources are limited. They can't have everything as kids and they won't be able to have everything as adults. And if, as parents, we start encouraging our kids to work for the things that matter most to them, those kids will start to appreciate those things even more. Are those money lessons? Are they parenting lessons? I think they're somewhere in between.

Michelle Singletary: Thank you so much for your comments. As far as kids and money, I've learned that they will live if you say "no." Honestly, that's a word a lot of parents just aren't say enough of these days. But children also are very aware of how their parents handle their money. So it's important to model good money behavior. For example, in our house we talk about the importance of tithing and giving to charity. We talk a lot about saving and the fact that they can't go to McDonald's every day because we need to save for their college education so they can get a good job and get out of my house :) In other words get your kids involved in the financial goals you have for the family.

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Anonymous: Help! My three credit scores range from 510 - 550. I was out of work a bit last year and the few 30 days past due and the one 90 day past due are legit...I also had a great deal of debt. I paid off EVERYTHING and have no debt now. My scores are still not rising. Due to the lay off and relocating for a new more stable job...I sold my home (where the $$ to get completely out of debt came from). Well...I am afraid that I will never be able to buy another home due to my credit scores!; Whay can I do to speed up the process?

Jean Chatzky: Speeding up the process isn't really possible. But, you don't need a perfect score to get a mortgage. You need to show a consistent pattern of payments over the last 12 to 24 months. (Anything older than 24 months is really ancient history as far as the credit bureaus are concerned.) So take heart. Two years really isn't that long a period of time. Just make sure you don't get back over your head with your credit cards and you'll be fine.

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Westminster, Colo.: Hello. I read and enjoyed your book "Pay it Down". I have found many things in the book helpful (even though the only debt I have is a mortgage payemtnt). Health Insurance is my big sticking point. The Health Savings Account is the basis of my question. My employer doesn't offer this item. I found it offered through some companies via eHealthInsurance.com. If I were to use this through an insurance company, then the money I would put in there would not be pre-tax. What would be the benefits of using this or can I even use it?

Jean Chatzky: If your employer offers health insurance at all you may be better off taking that option rather than enrolling on your own in a health savings account. As for the tax question -- I'm not sure if you do it on your own whether the contributions are deductible (although I believe they are) but I DO know that ehealthinsurance.com has a really good FAQ section where I'm sure that quesiton will be answered. If not, call them.

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Herndon, Va.: Hello, thanks for taking our questions. I'm 24 and living at home, and driving a used car. The car needs to be replaced (get something used is my preference), and I really want to move out soon (I don't want to pay rent though, I'd rather pay a mortgage). Here's my problem. I just found out my company won't be giving any raises next year. Since as it is, with my savings/bills/etc, I can't afford to move out, how can I rebudget myself to meet these goals? I'm feeling rather desperate at the moment. Thank you.

Jean Chatzky: Okay, a car is a must. That's because it gets you back and forth to work and you're right on target to think about buying used. But here's the question. . .where is the rest of your money going? If it's not going to rent, it must be going somewhere. The answer to your question lies in the answer to mine. For the next month track where every single dollar is going. Once you know the answers you can start to decide you'd rather not spend as much on clothing or entertainment or travel and save it to eventually put a downpayment on a house. Good luck!!

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Frederick, Md.: For Christmas my husband and I are giving each other the promise of staying in budget - and paying off 100% of the charges in January. So what if I don't get a 10 carat DeBeers ring? Despite the hype of commercials I know he still really loves me. Is it really worth the fights over debts in July? Use some restraint people!

Jean Chatzky: I love this present!!

Michelle Singletary: So do I! I always say love don't cost you nothin'

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Baltimore, Md.: Hi Michelle and Jean,

I have just started a new job and we are paid monthly (previous position paid bi-weekly). Thus I am attempting to create a budget so that I wont be broke by the middle of the month. So my question, can either of you recommend a GOOD (meaning flexible) budget software?

Thanks

Jean Chatzky: Hi,
I've said it before -- I'm a really big fan of Quicken. But the latest version of Microsoft Money is also a big improvement and very good.

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Fairfax, Va.: What do you think of using a Roth IRA as an emergency fund? I have a Roth with my contributions totaling $8k. I have a secure job, and don't anticipate needing to dip into it. Is this ok or should I have a separate pot of money for an emergency fund?

Jean Chatzky: It would be better to have a separate pot of money in a savings account if you can swing it. This is more a mental thing than a financial thing. You don't want to allow yourself to believe that you can withdraw retirement assets before retirement. . .you want to convince yourself that pot of money is hands off until you're old enough to really need to use it.

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Washington, D.C.: My wife and I have been able to keep our finances under control, and it really helped when we went looking for a house. However, all of my siblings and my parents have run into money problems in the past.

Are there workable things I can do to pass on my values about money to my children? It seems that we are not learning good financial sense in school and talking about money is the quickest way to get into an argument with many people (especially if you are offering advice).

Jean Chatzky: Yes, I think the most impotant thing you can do for your kids is to show them that resources are limited. SO. . .make sure they have some money of their own to manage (allowances, for example) once they start school. Then spell out specifically what they are expected to use this money for (candy? entertainment? movies? clothing? it's up to you, but the parameters dictate how much or how little you have to give them). And then -- and this is really important -- stick to it. If your son or daughter blows it by the middle of the week, or buys something and is quickly dissapointed, DO NOT bail them out. You'll only have to restrain yourself once or twice before they start to get the hang of it.

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Rockville, Md.: Hi Michelle and Jean,
I have a somewhat minor issue dealing with money and I'm hoping you have some words of wisdom.

My fiance and I are hardworking and both earn ok, if somewhat low, salaries for this area. We have no debt (paid off all student loans and cars...woohoo!!) and are pretty much proud of ourselves and our lives.

But recently, I've found myself getting frustrated and upset at all of our friends who are able to easily buy houses, cars, etc because their parents give them thousands of dollars for down payments and other items (Mainly people where we know the situations and know this as fact). It's frustrating because while we wouldn't change our own lives, these people can't seem to understand why we can't afford what they can.

Please tell me we aren't the only ones that have ever felt this way. Any advice!

Thank you so much!

Michelle Singletary: You are definitely not the only ones to ever feel "envy" of what others have or are given. And let me just say this, you have no idea what financial state your friends are really in -- even with the money they are being given. They could still be in debt up to their eyeballs. They could be overextending themselves and not happy at all. So stop looking at the grass in other's yards. Sounds to me like your grass is in pretty good shape. Stop talking to your friends about what you can't afford and instead focus on what you have and your financial goals.

What do you think Jean?

Jean Chatzky: I completely agree. And I guarantee your friends are looking at you with the same amount of envy wondering why you don't walk around with the stress of the world on your shoulders. We'd all be so much better off if we could figure out what WE wanted for OURSELVES in this world an then focus on that rather than what the neighbors have.

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Crofton, Md.: I'm a single man with no debt except my mortgage, which is 20% of my take-home pay.

Where does one meet single women who respect my financial sense more than they want to live in a big house, ride in a Lexus and visit overseas twice a year?

Jean Chatzky: C'mon we need more details than that. Maybe we can get you a date right here. . . .

Michelle Singletary: I agree. A single man with no debt definitely sounds like a catch to me.

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Piscataway, N.J.: My daughter is 22 and I have had her on my credit card for several years (both names on the account). She now is working and self-supporting and wondering about establishing a credit record. Does she have a credit record based on this joint credit card?

Jean Chatzky: Nope. It's time for her to get a credit card of her own -- and because she has a salary, she shouldn't have any problem. Tell her to pick the best of the offers she's receiving in the mail and apply. And remind her it's really important that she pay those bills on time. One or two thirty day late payments on her newly established record can really mess her up when it comes time to buy a house or a car.

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Laurel, Md.: Caveat: haven't read the book

Doesn't saying you can eliminate your debt on $10 day assume that one has stabilized at a certain level of debt? Of how many people is that true, other than those than can't take on any more debt because they can't get any more credit.

Some people "grow up" at some point in their lives; but aren't most debtors still spending recklessly?

Jean Chatzky: Some are. . .but going on the $10 a day plan assumes that you are trying to get not only your previously accumulated debt, but your future spending under control. And I know it works. People on the street tell me so.!

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Frederick, Md.: I'm 40 years old and I have only been out of a credit card debt for two year now. I make a mortgage payment on a townhouse and i have a car payment. I only have about $10,000.00 saved up for any large expense that may occur. I am litterally starting to excessively worry about money all the time. I have a good paying job and the salary covers the bills (which are basic: basic cable, electric, etc) but there is not much left over. I will be working until the age of 65. The through of getting a second job despresses me. I wish I could turn back the clock with the credit card spending. Two trips of Africa, clothes, furniture, weekend trips, you name it!; I know I'm not alone, but can you give any encouraging words? Thanks!;!;

Jean Chatzky: You're doing great!! There are so many people in this world (and in this chat) who WISH they were in your shoes. You have no debt. You have SAVINGS. And, and this is really key, you're making PROGRESS. Keep going. Keep putting away your $10 a day (or however much you're managing to save) and then each year when you get your raise, make it a point to increase your savings a little more. I turned 40 just two months ago, and believe me, we are not as old as our parents were when they turned 40.

Michelle Singletary: Amen! Please some folks with good jobs don't have $10 saved.

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Queens, N.Y.: I love having a supermarket near my job so I can buy groceries for work and save lots of money on lunch that way. When I didn't have a supermarket near work, I would make a "work grocery list" alongside my regular one and then keep those items in a separate bag so I could take it easily to keep in the office fridge (and label them!;)

You find you can't talk yourself into spending on lunch when you know there is perfectly good food right in the office.

Jean Chatzky: Great idea! It probably helps you keep tabs on ingesting too many calories, too.

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Alexandria, Va.: Hi Michelle,
I'm 25 and just started re-paying my student loans, which total $21,000 and were consolidated at 3.25%. Now I may be looking at a bonus of around $3000-4000 in a couple months. Would it make sense to use this to pay down that loan (whose payments are only $130/month), or should I put it into other savings toward some other investment? What's the prudent choice? Thanks!

Jean Chatzky: Your student loans are at such a low rate of interest (even lower considering their tax deductibility) that you should be able to do MUCH better elsewhere. Put the money in savings until you have an emergency cushion of 3-6 months worth of living expenses established in a money market and then start investing for your future.

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Louisiana: How much debt is too much? Currently my wife and I have 30% of our gross income allocated to debt (car loans, house note, personal loan). We also have expenses such as fees and a rent subsidy for our college Jr. After all loan and expenses my wife figures we have about $800 to $1000 in discretinary income. But we can never seem to make ends meet. Help!;

Jean Chatzky: If you can never seem to make ends meet, then chances are you have too much debt. But before you try to scale back the loans themselves, take a look at the interest payments you're making. Have you refinanced your mortgage to competitive rates? How about your car loans -- did you know they can be refinanced too? They can, and it's much easier than with a home loan. Your credit union can probably help. Also, how about your credit cards? If you haven't called your card companies and asked for a reduction in interest it's time to do that TODAY!

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Bethesda, Md.: What is it about this time of year that makes normally sane people completely lose financial perspective? I am done with holiday shopping, and have purchased generous presents, but have this awful feeling that I need to buy more -- both for the people I've already bought for, and for people that I don't even exchange gifts with! What is wrong with me -- and how do I snap out of this before I spend my way through the whole season?

Jean Chatzky: It's not you. . .it's just that shopping begets more shopping begets more shopping. I've been looking into this for an upcoming story and there's a lot of academic research that shows that shopping is kind of addictive. Not only for people who have addictive personalities, but once we open our wallets once (and we do it far more than once per holiday season) our willpwer is zapped and we do it over and over again. So. . .to snap out of it, give yourself some other things to do. Schedule yourself. And turn off your computer at night so you won't be tempted online.

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TO Rockville, Md.: Some advice: you can feel smugly self assured that you know how to MANAGE money. Being given money and spending it does not a money manager make. At some point, your friends will not have people who can give them money for things and they may be at a loss for how to budget for something, save for something, etc. It might not feel like it now, but YOU are SO much better off in the long run.

Michelle Singletary: Good points!

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Maryland: I just sold my house (good profit - made $130,000 in just over 6 years on a $0 downpayment) and will be moving into a new one soon. most of that is going towards a downpayment on the new place - over 30% down. While I AM buying a much bigger (and more expensive) house, I did the math and here's how I "saved" enough for it:

based on the new mortgage, I will get back about $12,000 more per year in tax refund - money I will put towards paying down the house (paying myself via equity vs. paying Uncle Sam - the money was leaving my checking account one way or another). But I didn't buy the house for the larger mortgage, I bought it b/c the old house was just too tiny at this point in my life.

I m fortunate enough to save by not having to py for parking at work (which runs around $180 a month for me). I still budget as though I have to put that money out the door each month (it goes into savings for emergencies).

I quit my health club and started using the treadmill in the hotels (when traveling) and at work (when in the office). It isn't as glam and I don't get as much socializing, but I get the same workout and it saves $50 per month.

I put the money I get for mileage into savings for when I eventually need a new car. I have a luxury car, but I bought it used (2 years old) and I kept the last one for 9 years. I don't "save" the payments anymore (paid off a 5 year finance deal in 1 year), but I did allot that money towards the new larger mortgage.

I allowed a friend to move in (having a hard time and lost his house) rent free (he pays a little towards bills), but in exchange he is doing the cleaning and pet sitting that I was paying $250 a month for. cash savings for me, plus gives him a chance to get on his feet.

There are a few other things, but I was amazed at how just a couple of minor adjustments meant I could afford the new place without sacrificing my current lifestyle. which is debt free (no car payment, no credit card debt, no student loans), other than the new mortgage.

Jean Chatzky: Excellent! There are enough good ideas in here for an entire article. . .Michelle?

Michelle Singletary: I totally agree. What I found great about this comment is that this person planned all the way. That's how you handle your money. If you're going to spend on one item you have to figure out how to cut elsewhere or how that expenditure will impact your budget.

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New York, N.Y.: Oh, I hope you can help me!; My FICO is 650 -- which is lousy, right? My credit card debt varies each month (sometimes zero balance, sometimes $1500), so won't my score change each month?

Also, I have old credit cards that I thought were closed but still show up on the report. Should I close them now, or will that make it look like I have less credit and somehow hurt my score? Thanks!;

Jean Chatzky: First of all, 650 is not lousy. It's average. Closer to 700 would be better. And a $1500 swing isn't going to make much of a difference either way. You're right bout closing accounts, that can sometimes hurt your score. But yoru score may be lower than need be because FICO perceives you to have too much credit available to you. Your best bet. . .go to myfico.com and spend $12.95 to pull a score with a report that tells you how to improve it. Then you'll know whether closing or not closing those accounts is the way to go.

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Virginia: We work in DC and live in VA -- commute is about an hour for us to afford a nice little townhouse in a nice area. We have a ton of equity now and also a ton of frustration with the cost (financial and otherwise) of living in this area. How do you know when its time to just give it up and move somewhere you can hope to have a better quality of life? Home and work is fine -- its these external factors that are killing us.

Jean Chatzky: "It's these external factors that are killing us" Those are your words -- not mine -- and they're pretty strong ones. Do you think maybe you answered your own question???

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New York, N.Y.: How does one go about refinancing their car loan? I know I can do better than my current one (at about 8.99%) but am at a loss how to do it (it's my first car.)

Jean Chatzky: There are two places to try. First, your credit union if you belong to one. Credit unions have made a lot of waves offering really good rates on used car loans. Second: CapitalOneAutoFinance.com which may be under CapitalOne.com -- they too offer some of the best rates going. You apply for the loan and follow the directions. It takes 15 minutes and will only cost $15 or so to change title. Good luck!

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Kalispell, Mont.: Hello!; I'm 15 days into not using my credit cards at all, following the advice in Michelle's book "7 Money Mantras". Do you believe I'm doing this in December and January of all months? But it is absolutely liberating to not spend money. Several times in the past two weeks I've wanted to buy something, but couldn't because my credit cards are in a sealed envelope. I can't even remember what those things were. The most exciting thing is that next month I'll receive a credit card bill with a zero balance due for the first time since I can remember. Thank you, Michelle!;

Michelle Singletary: Thank you. I'm so happy my book has been such a help to you.
And what a testimony. See folks, it can be done.

And just so you know the paperback of my book comes out in two weeks. The title has changed. The new title is "Spend Well, Live Rich."

But whether you buy my book or Jean's if you're deep in debt make a promise to yourself to start the New Year off unloading that burden. As this person testifies it's a great feeling the day you credit card statement comes and it shows a zero balance.

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Kalispell, Mont.: In response to Piscataway's question about her daughter's credit history...now that free credit reports are available in my state, my 19 year old son and I looked at his credit report for the first time. We were surprised to find that my Amex account (he has a card on my account) showed up on his credit report. So, he is actually getting credit for my account.

Michelle Singletary: That's is true. Whenever you are a co-signature on a credit card or some other loan it can show up on your individual credit report and impact your own score.

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Washington, D.C.: RE: Lessons for kids.

The best, most lasting, message I ever got from my mother was this. My parents worked very hard in life and managed to do rather well by the time I was in high school. Someone called us rich. I went home and asked, "Mom, are we rich?" She looked me in the eye and said, "Your father and I may be what some people think of as rich. You, however, are dirt poor and own us for everything you've ever gotten in life."

I've always remembered that, especially whenever I think the world "owes" me something. I've got to work for what I want.

Michelle Singletary: So you know I like this. My daughter once told me she could lock the door to her bedroom anytime SHE wanted because it was HER room. I asked: "Oh, so you signed the mortgage check this month?" I told her it was my house, her room was my room and that I was only letting her borrow it until she could afford to get HER own house and bedroom.

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Alexandria, Va.: Hi Michelle & Jean,

I'd like to thank the two of you for being valuable resources to my students. I am a professor of finance and love your matter of fact, straight to the point and practical approach to personal finance. I teach a financial management course that focuses on the corporate world, but find that many students don't understand or don't have their personal financial house in order. I now devote ten percent of the class time to personal finance. I find that it makes them understand the bigger picture better.

Thanks again.

Michelle Singletary: Thank you! We try.

Well, thank you all for joining this chat today. Great questions, suggestions and comments.

As always, I'm holding on to the ones I didn't get to today and may answer them in my column or in my weekly newsletter.

Finally, I hope you all have a wonderful (debt-free) holiday!

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