Color of Money Live

Need advice about how to handle your personal finances? Whether the struggle is saving for retirement, organizing your bank files, talking about money responsibility with your spouse or loved one, Post personal finance columnist Michelle Singletary offers her advice and answers your tough questions.

Michelle was online for a free-for-all discussion on money matters on Thursday at Noon ET . A transcript follows.

Read Michelle's latest columns , check out her Color of Money Book Club selection archive or sign up for her weekly e-mail newsletter.

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Michelle Singletary: Good day everyone. Hope you all had a great Thanksgiving. I certainly did. Small gathering this time but lots of good eats, which I cooked. And one of the things I was most thankful for is being able to reach out to the many readers of my column and hopefully provide some good personal finance information.

Well I see there are lots of questions already so let's get started.

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Bowie, MD: Hello Michelle,

I've got a quick question for you about 529 plans. One of my best friends and I are co-Godmothers to another best friend's son. Our Godson is turning one this month and we'd like to set up a 529 plan for him. Can we set up a plan together? What's the best way to go about this? Should we go through a bank or through one of the 529 website?

Also, I'm making the assumption that although we are not blood relatives we can still set up a plan for him.

Your help is much appreciated!

Have a good one

Michelle Singletary: Well aren't you two the best co-godmothers. First before you do anything I recommend you read up on 529 plans. Go to www.savingforcollege.com. Great site. But the basic answer to your question is you can open up a plan for your Godchild. You don't have to be a blood relative. I'm not sure if you can both can be account holders so check with the plan administrator. Since you live in Maryland, the state gives a $2,500 state tax deduction to the account holder who is a resident in Md. So you can do good and get a deduction. However, you aren't limited to Maryland. You can invest in any state's 529 plan D.C also has a 529 plan).

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Need your willpower: I have put away the credit cards, started to pay back all debts using your format. So, great, I am on my way....how to keep the momentum when you have decided that you aren't going to spend? Especially at this time of year?? Love your column, chat and books.

Michelle Singletary: Here comes my WILLPOWER. Keep copies of the old credit card bills handy. In fact put them in your purse or wallet (black out the account no, etc. in case you lose them). Anyway the point is keep something with you that reminds you of why you are trying to get out of debt. Think about how having all that debt makes you feel weighed down. It's those feelings that will keep you on the straight and narrow.

And stay away from the stores. It's just too tempting. Find other ways to enjoy the holiday. Visit friends. Go to church. Volunteer. Make the holiday about something other than shopping and giving stuff to people who already have too much stuff.

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Washington, DC: Hi Ms. Singletary

It must be very rewarding to help people clean up their finances, and especially to see them get out of debt. You must love your job!

What kind of education did you get to do your job? Are you a certified financial planner or a CPA or something? I'm still a student and thinking what about this kind of field, and I was wondering what you did. Thanks!

Michelle Singletary: It is very rewarding. Wish I could help more people. And no I'm not a CPA nor am I a financial adviser. I've learned what I know from years and years of studying, interviewing financial experts and talking and helping real people. In fact, I think it's best that I'm not a financial planner because that way I can remain unbias. I'm not trying to sell people anything so I can keep it real. But if you want to become a financial adviser that's great. There is a great need.

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Alexandria VA: Which book or books would you recommend for someone to use as a workbook to set their lives and financial house in order? I am looking for an all encompassing book that would cover budget, college savings, retirement, wills, advance directives, custody arrangements, etc. I want to start my New Year Resolution in December!!!!

Wishing you and your loved ones a Merry Christmas and a Happy and Blessed New Year!!

Michelle Singletary: Great question. There are some really helpful books out there. Seriously you should go to the Color of Money Book Club page and scroll down and look for a book that would fit your requirements. I've reviewed a number of books that can help you get your finances straight. And then there is always my book :)

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washingtonpost.com: The Color of Money Book Club

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LaPlata, Md.: My question is this. Should I get out of credit card debt first, or should I put at least ten percent of my money in the bank each pay period in case of emergency while I get out of credit card debit? Second, question do I pay on the credit card with the least amount owed or pay on the card with the highest interest rate?

Michelle Singletary: Let's see:

* You need to still try to save for your emergency fund. Why? Because if you don't have some spare cash what will you have to do if something unexpect comes up? Borrow! So if you can save and pay down your debt do it. In fact do it even if you don't think you can't. So if you only have an extra $50 a month to pay down debt. Take $20 and put it in your savings and use the $30 to pay down debt.

* Just so you can feel a sense of accomplishment pay down and off the smaller bills first.

* If you have credit card bills with high, high interest rates try as best you can to make more than the minimum. You want to pay off the little bills but you also don't want to be deeper in the hole by allowing the interest charges on the other bills to continue to rise.

Hope all this helps and remember it will take time but it's well worth the effort to be free of the debt.

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Silver Spring, MD: Am I doing OK?

Single male (38), no kids. Salary of $47K. Own my own home (Condo) which I recently refinanced to pay off some bills and put the remaining money ($30K) back into the bank (mutual fund). Also have a home equity line of $20k which I have not used. Also have a Roth IRA with close to $11K in it. Whole life policy of $100k which I contribute $75 a month. Disability insurance. Have a little over $60K saved thru various programs provided by my job. Put away $300 in basic savings (of which I have $3,800 already saved) for emergencies, travel, etc.

I still feel like there something else I should be doing.

Michelle Singletary: Something else you should be doing?

HAVING FUN.

You are doing just fine. And are you fine? Cuz I do have some cute single girlfriends :)

Just kidding. Seriously, you are on the right track.

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Washington, DC: Michelle--

Thanks so much for the chats! I am fortunate to own my condo without a mortgage (worth roughly $400,000). Unfortunately, I have about $21K of credit card debt from college. I am paying it off as fast as I can, but with my meager government salary, it is hard to pay off very much and save anything. Would you recommend I take out a home equity line of credit to pay down the credit card debt at a lower rate and allow me to start saving more? (I'm 26). Thanks!

Michelle Singletary: Wow. What an accomplishment. I don't even own my home free and clear. I would say if you don't think you will run up the cards in the future and you can get home equity rate lower than what you are paying on those credit cards than yes, using your home's equity to pay down higher debt is okay.

HOWEVER, I'm not a big fan of trading one debt for another especially when it comes to putting your house on the line. Is it possible to get a credit card offer with no interest. I bet you get those offers in the mail ALL THE TIME. If so do it and then try to aggressively pay down the debt even if it means cutting some of your expenses for a bit. Go to www.bankrate.com and use that site's credit card calculator to see how even paying a little more than the minimum can make a huge difference.

Also there is something to be said about painfully and slowly paying off debt. It has a way of keeping you of not going there again.

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Cheshire, Ct.: How do you balance the tax deferral benefits of a 529 against the apparent college aid disadvantage of the child having more assets in his name. I believe the aid formulas assume a greater ratio of assets are available for tuition if the assets are in the student's name?

Michelle Singletary: This is an interesting question. And honestly one I don't really understand. Parents ask it often. They want to know if they save in a 529 plan won't it mean their kid might not qualify for more aid. But if you save and your kid doesn't NEED aid why ask the question. The need is so great out there for money for people to go to college. If you have the resources to save for your child than do it. And yes, I do understand that there are a great many people who earn a lot but not so much that paying for college won't be painful. That's why you save when you can. Leave the pot of aid money for folks who really need it.

And yes, I know that some people qualify for aid when their parents have been living it up and you feel cheated. But you're not being cheated. You did the right thing by saving for your child. If you have the money why try to hide it or not save it so you can get aid?

So finally having money in a 529 savings plan does not necessarily disqualify your child for aid. However, the best way to check is to call the financial aid office of the school or schools your child would be interested in attending.

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NOVA: What do think of the employer provided flexible spending plans that allow you to put aside a part of your paycheck tax free to pay for childcare and some medical expenses?

If you don't spend it, you lose it. That makes me a bit wary of the medical one, as I KNOW I will be using all of the childcare one.

I have some debt and am wondering if I would be better off forgoing participation in order to pay my debts off faster.

Michelle Singletary: Great question. I think the plans are a great idea and I use them myself -- the day care one since thank God I'm pretty healthy (nuts but healthy).

But you know how much you spend on health care costs in general. If not look at past years. And you don't have to put away the max. Put enough in the account to cover what you think you will need to spend. And the cost can include glasses, medicine, etc.

Now if you don't think you will have enough expenditures than yes use the money to pay down debt. You don't get the tax break but you do break away from having a lot of debt.

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Phoenix: We are very proud of our 22 year old son--working in Teach for America, earning a Master's Degree, a delightful, caring person. However, he admits his finances are a mess even though he has sufficient money to pay his bills. He missed 2 credit card payments while moving because he did not enter the information correctly on Bank of America's "pay automatically" option. I am sure this has already hurt his credit score--and that's the only problem I know about. He keeps his money in a non-interest earning checking account.

I am torn between needing to "back off"--and wanting to help him organize himself in some way. What would you suggest for a person in his situation?

His proud but financial despairing Mom

Michelle Singletary: I love proud mamas. And you know what? It's okay to help him as long as he wants the help. Don't bail him out but help. Show him how you keep your money straight. Buy him a copy of Quicken or some other financial software to keep track of his bills. If you go to the page for my Color of Money Book Club several months back I recommended some budget software that is easy to use. You are right to be concerned because those two missed payments can seriously hurt his credit score. You should encourage your son to get copies of his credit report AND at least one of his credit scores. If the score is bad you can help him figure out how to improve it so that one day he can buy a home and not pay a higher than normal interest rate. Go to www.myfico.com. As you know we all are entitled to a free credit report once every 12 months. Go to www.annualcreditreport.com

Just because he's 22 doesn't mean he can't still benefit from his mama's love and financial know how. Shoot my grandmother, Big Mama, was telling me how to handle my money right up until she passed away. I was in my 30s with a husband and kid.

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Piscataway, NJ: To the person asking about the wisdom of saving for your child's education - I say DO IT. They are not exactly giving away college grants these days. For most middle class people, the best you can hope for is loans and work-study (a job for the student). You would be shocked what the formulas they use for aid will say you are able to afford as far as paying for tuition. If you don't save and you make a middle class or better income it will be VERY painful. I speak as someone who has just put one child through college and have another midway through.

Michelle Singletary: Good advice. That's what I say. Don't spend so much time worrying about the formula's. SAVE SAVE SAVE.

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New York, NY: To the person who owns a condo:

Since this person doesn't have rent or mortgage payments to strain their budget, it seems like there ought be a place to cut spending somewhere.

I'm the same age, live and pay rent in expensive New York AND pay college loans on a sub-30K publishing salary, and I haven't incurred any other debt or gotten any outside help. Just sayin'.

Michelle Singletary: And sayin' it well!

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Boston, MA: Michelle, flexible spending accounts and dependent care accounts are a great way to increase your savings. I save up my receipts and submit them at the end of the year, and get a nice big check back, which I put in savings or use to cover any taxes due in the spring. I know it's just a mental trick, but it has worked for me for many years. Just a thought.

Michelle Singletary: I agree. But as the reader said she may not have enough to get the money back. So do it if you have the expenses.

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Re: Savings on Christmas shopping: I would like to recommend used bookstores and consignment shops for people who are trying to save money this holiday season. I bought great hard back books that looked like they hadn't been opened for 75-90% off their original prices. I have also found kids clothes at consignment shops with either the original tags on them or no sign of wear at all. Toys too. You just have to look to give great gifts at a small fraction of retail.

Michelle Singletary: Again, good advice. You guys are on fire today.

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The Doing OK Guy?: I've been told I'm attractive. How do your girlfriends look? And are they financially stable. haha

Michelle Singletary: Please, I hang out only with the best -- looking people. Hey Alexa!

And yup many can pinch a penny just like me!

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Life insurance: I noticed an earlier chatter who is single with no kids mentioned he puts $75 a month into a life insurance policy. I am also single with no kids and never really thought I needed one. Am I missing something? There's no one I am worried about financially should something happen to me.

Michelle Singletary: You know I wrote about this very issue recently. Got a lot of nasty notes from insurance people because I said if you are single and you have no one depending on your income or support than you are right, you don't NEED life insurance. I don't know the poster's full situation so maybe he does have a reason for life insurance.

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Washington, DC : I have been reading your newsletter and column for quite some time now. While I still have a ways to go regarding being more financially aware and responsible (in a good way), I am saving more money and think more about some of my purchases, especially this holiday season. I have a question about credit cards. I know that it is true that if you close an account, your credit score will be lowered because of it. I have a credit card that I would like to pay off and close because of the annual fee. How long will it affect my credit score? I am looking to do this by March 2006 and will not be making any major purchases that will require credit before fall 2006 (rent an apartment, possibly buy a condo/house). Should I just suck up the annual fee because it will have a negative effect for too long?

washingtonpost.com: You can sign up for Michelle's personal finance e-letter here .

Michelle Singletary: Great question. Nope cancel the card. Don't keep paying an annual fee you are not happy with just for your credit score sake. If you're credit wise otherwise (pay your bills on time, have another credit account that is long standing) you will be fine. And since you won't have to get any new credit anytime soon the hit won't be so bad or for long.

But you might want to let the credit card company know you are cancelling and see if they might waive the fee. You never know.

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Burlingame, CA: Michelle, I love your chats and your weekly column.

I currently have 2 credit cards, one since 1998 ($7300 limit) and another since 2000 ($2250). I've always paid my balances in full and on time. I am in the process of establishing domestic partnership with my boyfriend so that I can qualify for health insurance through his plan and we meet the criteria in everyway except that we have to add one way: a joint credit card. We plan on getting a card with a low credit limit, like $1000 or so.

Does adding this third credit card lower my credit score and if so will it hurt my score a lot?

Thanks!

Michelle Singletary: If you read my column and chats know I'm going to ask -- why ain't he marrying you? I so don't like to hear men and women who are not married linking their finances together. But you're grown.

Anyway, for question. You should be okay adding another card.

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20906: Two months ago I had a shock. Even with rising taxes, etc my mortgage payment went down by $40/month. I am determined that I will take the $40 each month and stick it into an emergency account for any unexpected home repairs. Even tho it is only $480/year that is a good start towards a smaller repair.

Michelle Singletary: Hey $480 is nothing to sneeze at. Every little bit helps!

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MD 529 Plan Changes: Michelle, No question- just wanted to try a quick post about changes to the MD 529 College Investment Plan starting on July 11, 2006. The $75 enrollment fee is being eliminated, and the Program Fee is being reduced. Also, a low-cost equity index fund will be added to the Fixed Portfolio lineup. This info can be found on the inside front cover of the MD College Investment Plan Disclosure Statement. Folks thinking about starting an account next year may do better by waiting until after July 11 (at least save the $75 enrollment fee).

Michelle Singletary: I liked what you said until you said wait until July to save. Don't wait. Even with the fees now that would mean 8 months of not saving and not getting possible returns on that money that could more than offset the fees. But your larger point and information is great. I'm glad to see many 529 plan managers lowering their fees!

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Arlington, VA: Dear Ms. Singletary, I'm having trouble figuring out whether to pay off my car loan or save. I plan on relocating to another state in January and already have a cushion of $6,100 saved. Since I live at home I have been putting most of my paycheck into paying off my car loan. I have half the loan paid already and wanted to pay off most of it before I moved in case I didn't find employment right away. Once I move I'll need to pay rent, etc. So right now I'm at a quandary because your advice seems to be to save but I really hate owing the money when I could easily pay 80% of the loan before I leave and still have $6,500 saved with about $1,000 in my checking account. Should I stop paying so much (or all together) on my car loan and instead put it into my savings? How can I strike a balance? Thank you!

Michelle Singletary: First stop stressing. You're doing fine. But may I suggest you go about the solution to this issue a different way.

Get information.

Draw up a budget for your move. How much to move your stuff? What will it cost for you to get your apartment including security deposit, first and last month's rent, etc.? What things will you need to buy to set up your own household? How long do you think it will take you to get another job (although I wouldn't move without a firm job offer unless there is some compelling reason to do so). What other cost that you aren't paying now will you incur (cable, food, utlitites, etc.). Once you have a budget than you know whether you are need to save more and cut back on paying down your car note. I'm all for being as debt-free as possible but Jan. is just around the corner and moving can be very expensive. You might fine that your $6,000 isn't enough, especially since you're likely to have to put down a lot for your apt. perhaps as much as half that $6,000 depending on where you are moving to. If you really want to be clear of the car note and have a fat savings than stay put until you pay off the car AND save enough based on the budget you've researched and drawn up.

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Burlingame, CA: Michelle, thanks for answering my question. I really really appreciate it. Yes I do read your columns and I knew you were going to say that!! And I agree with you.

We live together and share in expenses but we have maintained separate bank accounts, etc. We will the have a credit card but have agreed not to use it.

Michelle Singletary: You agree with me? So that means you WANT him to marry you but he won't? If so why are you settling? If he's getting everything he wants now (and I mean everything) there isn't much incentive to marry you. And if you break up it will be much like a divorce anyway.

Sorry, I'm a mama and Big Mama's daughter.

But I will say this. You are at least handling your money the way you should if you aren't married to the guy. Keep it all separate. I do hope you've drawn up a living together agreement. Also, just keep in mind even tho you "agree" not to use the card he can anytime he wants.

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Beltsville, Md.: After your last chat with Prof. Dyson, (this also kind of ties in to Sunday's column) without being judgmental or pre-judgmental, let me ask Michelle:

From your position, I would suspect you can observe some culturally-rooted differences about the way blacks and whites handle their finances. After acknowledging that blacks have on average less income and family resources, do you observe any important patterns like, perhaps, blacks are more suspicious of the stock market or are less likely to subscribe to publications like Consumer Reports because their parents didn't?

washingtonpost.com: The Color of Money: Debunking Cosby on Blacks (November 13, 2005) Discussion Transcript (November 17, 2005)The Color of Money: Partner Up For Prosperity (November 27, 2005)

Michelle Singletary: Interesting question. And asked so nicely unlike the many haters last time :)

Honestly, I've seen no differences culturally. We all live in American and the American thing right now is to spend beyond your means. Poor blacks spend well or as badly as poor whites.

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Pasadena, CA: Michelle,

Thanks for all of your great advice, I love your column!

I want to know if my husband and I are trying to build our 3-month savings, is it better to put our money into the savings or pay off credit cards, especially two cards that have no interest until the end of next year.

Michelle Singletary: Do both. Continue to build up your savings and pay down the cards. And in your case that might mean pulling back just a little on paying down the cards so that you can have a cushion, especially if you don't have to pay interest.

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Oakton, VA: My husband and I have started a family and now I stay home with the baby so there is one loss of income. We only have a mortgage and two car payments (plus household bills) but the car payments almost equal the amount of our mortgage. In fact his car payment equals half of one of his paychecks. (its not a fancy car, just a PU truck) I only have a little under two years to pay off my car and it has positive equity in it right now. His car will be paid off in three years and probably has a little positive equity. We haven't been able to put any money in savings b/c of our bills (household, medical, baby stuff, etc.) Should we refinance the cars for a lower payment but longer payoff time or just keep it as is? Thank you very much.

Michelle Singletary: I would stay the course. Because remember in addition to longer pay off you'll pay more in interest. That's money you can't afford to give away.

Having said that, really try as hard as you can to keep a savings cushion especially on one income.

However, if you really, really need some financial breathing room do the math. See how much more you have to pay if your refinance the cars. You might find that you won't save that much.

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Rockville, Md.: Posting really, really early.

It's that time of year again when everyone opens their wallets and empties what's left of their brains on a store counter.

Really, Michelle, guru of all that is financially wise, what is the answer to the shop-and-spend mentality. I HATE the mall shop for stuff that I'll never see again and folks will likely not appreciate. I want to just buy a few things for my son - he's three. That's it.

How do you get OUT of doing Christmas shopping and keep relationships in tact?

Help!

Michelle Singletary: Be honest. Tell folks this year you really want to pull back and then do it. Some might be mad but love them anyway. Remember it's your money and your life and you have to be true to what you can afford cuz ain't none of them going to pay your bills every month.

And in lieu of gifts have folks over and spend time with them. That's something that is priceless to all of us -- time.

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Michelle Singletary: Well folks I have got to go. Thanks so much for all your questions. I'm sorry if I didn't get to yours but look for my column and you may see your question answered soon.

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