Michelle Singletary
Thursday, November 15, 2007 3:12 PM

In my last online discussion, there were many questions I couldn't get to. So here are a few leftovers with my answers:

Q: I'm expecting my first child and while I'm thrilled, I just don't know how we're going to cover the expenses, even on a decent two-salary income. My husband and I just bought a house and we're essentially living paycheck to paycheck. I don't know what we're going to do when the baby comes and day care is added to the mix (not to mention all the expenses of a baby!). I'm so scared about how we're going to be able to make ends meet. What should we do?

A: Having a baby can be scary. It's a new life with new demands and -- yes -- expenses. However, it's too late for financial fear. Instead, use the time before the baby arrives to play forensic accountant. By that I mean, this couple needs to comb through their budget and find ways to reduce their costs. Typically, there will always be some overspending. Question all expenditures and find ways to cut. For example, look at your insurance policies. Could you raise the deductible to reduce premiums. Of course, that means saving up in case you need to file a claim and have to pay the deductible. Click on this link for a sample budget worksheet.

Q: I'm a recent college grad with $16,000 in student loans and $3,000 in credit card debt. I recently signed up for credit counseling with a company that negotiated a lower rate for me (tried to do it myself). I have no savings, and can't get another job due to family obligations. Will the debt counseling hurt my credit badly or is it OK since I'm young and have time to change my score before I'm ready to settle down.

A: When you're down and out with debt issues, don't worry so much about your credit score. Unless you are going to apply for credit soon, concentrate on paying down the debt. But to answer the question, working with a credit counseling agency does not lower your credit score. Fair Isaac, the company with the most widely used credit scoring model, has said their model ignores any credit report mention of a debt management plan. However, keep in mind two things. First, lenders that know you are working with a counseling agency may deny you credit. And if you are making payments to an agency and that organization fails to make your payments on time, that will lower your score. So choose the credit counseling agency carefully.

Q: Within the next six months (knock wood) I will have paid off two credit cards and my car. I will still have three more credit cards to pay off. I plan to take holiday work this season to make extra income. Should I focus on paying off my debt, which could be paid off in a year or so, or should I use any extra money to pad my savings. I have a "life happens" savings, but I really want to start an account with 3 to 6 months of living expenses. Also, I have been seeing ads for E-Trade savings account with a 4.80 percent interest rate. Do you have any thoughts on this?

A: Debt vs. savings -- it's one of the most frequent questions I get. You need to do both, save a little and pay down the debt. If you have no savings and an unplanned expense comes up (car repair, etc.), then you have to use credit. I think it's fine to use an online financial institution offering a higher-yielding savings account -- as long as your deposit is federally insured. E-Trade has been in the news a bit lately, so do some research first.

The Price of Schooling

In a recent Ask Amy column, a mother complained about the additional costs of private school -- sports registration fees, party supplies for school, teacher's gifts, etc. They don't want the kids to go without, but the additional costs are taxing. She writes: "I feel guilty if we don't contribute, broke if I do, and I'd rather not admit that we can't afford these extra requests." And she seriously questions whether these costs are reasonable.

Read the column to see what Amy suggested.

On a related topic, The Post's Steven Pearlstein took a look at rising college costs in his column this week: "The College Board is just out with its annual statistics on college finances and, once again, tuition and fees have risen faster than inflation or household incomes." The column does a good job at highlighting what he perceives are the reasons for these escalating costs.

Be sure to also read what others thought in the transcript of the Web chat he hosted.

Escaping Economic Evolution

Earlier this week, a new report was released by the Pew Charitable Trust that focused on how the "American Dream" transcends generations. Some of the finings showed that black middle class families have trouble passing down wealth to their children.

"Forty-five percent of black children whose parents were solidly middle class in 1968 -- a stratum with a median income of $55,600 in inflation-adjusted dollars -- grew up to be among the lowest fifth of the nation's earners, with a median family income of $23,100," wrote The Post's Michael Fletcher in an article about the Pew study.

To further the conversation, Fletcher hosted an online discussion. But what about your thoughts? Read the article and transcript of the Web chat, and then e-mail me at colorofmoney@washpost.com. Write "Leaving a Financial Legacy" in the subject line.

XM Show

You can still join me on the radio if you have a personal finance question and haven't been able to participate in my online discussions. I host "Singletary Says" every Sunday on XM Satellite Radio, Channel 169 The Power. The show airs from 8 p.m. to 10 p.m. ET.

Call in with your comments or questions. The number is (866) 801-TALK or (866) 801-8255. You can also e-mail your question, which I may read it on the air, at michelle@xm169thepower.com or at singletarym@washpost.com. Be sure to put "XM" in the subject line.

You are welcome to e-mail comments and questions singletarym@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.