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.

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: Welcome. Lots of questions so let's get started.

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Oxon Hill, MD: Hi Michelle!! I really enjoy your columns, book, shows, etc. I need your advice. I'm 26, own a condo, and work as a teacher. I save quite a bit in a roth and two money market accounts. I'm getting ready to leave the area and go to Atlanta and live with my parents (they're happy to have me). I have some credit card debt (about $3,000) and a student loan, and I would like to buy a car when I move. I should get about 40 or 50K from the sale of my condo and anticipate having a surplus of money once I start working next school year. do you have any suggestions about what I should do?

Michelle Singletary: First sit down and make sure you have budgeted everything for the move. Then think long term. You may get to Atlanta and decide as much as you love your parents, you can't live with them. You might need that money then to buy another home.

I would definitely pay off the credit card debt. And don't carry that kind of debt again. Depending on the interest rate for the student loan debt I might hold off depleting my cash reserve to pay that off. But if as you say you've covered all bases (got emergency fund, funding retirement well, got a good secure job in Atlanta) then sure use some to get you a car and pay off the credit card and student loan debt. Living with your parents will give you a chance to build that money back up in no time.

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Washington, DC: Good afternoon,

I know you are not a tax person, but I wanted to ask if you (or the proper Post Reporter) was aware that it seems a large % of 2003 first time DC home buyers are being audited by the Feds for having received the 1st time home buyers credit?

Michelle Singletary: I hadn't seen that but you might want to send an e-mail to Al Crenshaw. He's our all-knowing tax person at the Post.

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Manassas, VA: My husband and I have 1 daughter in college. Another one will soon be in college in 2007. Our daughter currently has financial aid and student loans. Both my husband and I finally have decent incomes (I just recently changed jobs), and we are able to save about $400-$500 out of our paychecks each month. What would be the best way to start investing/saving, and what should we invest in, or save our money in?

Michelle Singletary: With one child in college and the other on the way soon it's hard to advise you to "invest" that money since you will be needing it in a short period of time. But having said that I would still recommend a 529 plan. At least the money grows tax free and isn't taxed when you withdraw. But choose investments on the conservative time since you don't have long to weather the ups and downs of the market.

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Depressed about housing: Hi Michelle. Thanks for taking my question. I'm in my early thirties, make a good salary (low 70s) and am thinking about buying a house later this year. When I used a calculator to figure out how much of a mortgage I could afford based on income, expected down payment, and debts, the result was about $250K - which won't buy much of anything these days. Should I save up some more for a downpayment, or go ahead with plans to buy? My thinking is that I'd like a house to be paid off by the time I hit retirement age in 30-something years' time, and the longer I wait, the higher the prices might go.

Michelle Singletary: No question you make a good salary. No question the housing market, especially in urban areas like the DC region is making it tough for people who have "just" a good salary.

So what to do. First, not over extend yourself. That will raise your stress level to a place you shouldn't go.

Now, talk to the professionals (experienced real estate agents). Keep looking -- and in areas you may have overlooked.

Perhaps you could buy with a relative. And yes save as much as you can because you will need every penny, even if you have a low down payment. Once you get into the house the expenses can be mind boggling.

Most importantly don't get depressed. Even if you have to continue renting for awhile that doesn't make you a financial failure.

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Hyattsville, MD: I'm single, 35, no children with very little cash saved yet want to purchase a home. My middle credit score is 557, but I was told that with a score of 580 I can qualify for 100% financing. Is it better for me to go for the 100% financing or wait another X amount of years to save up a sizeable amount for a downpayment? Thanks for your help!

Michelle Singletary: Frankly, I'm more concerned about your credit score. With a middle score of 580 you are squarely in subprime territory meaning you will not qualify good mortgage rates. Really you should spend time in the next year or two getting that score up to at least the mid 600s, higher if you can. You will save thousands of dollars if you do. Want to see the difference go to www.myfico.com. Click on the link for calculators then go to the loan savings calculator. There you will see if you have a credit score in the range of 560-619 in Maryland the avg. APR rate on a 30-year mortgage is around 8.3 almost 8.4 percent. But if you had a score of 720 to 850 you might qualify for a rate of 6.3 percent. That translates into a difference of about $418 a month not including taxes, PMI etc.

Next, you don't have much cash. Even if you don't have to put money down for a home, you have to have something to help with closing costs etc.

So wait. Get your score up. Save more money. Then if you qualify for 100 percent financing and a great mortgage rate go for it.

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Baltimore, MD: Hi Michelle,

I am struggle with my husband who feels he can get a quick buck and everytime he does this it always backfire. I watch your show last night on TVOne and plus I attend First Baptist and I know all the finances and I want to turn our finances around, but it's like pulling teeth with him. Him and I go to different churches so he doesn't see things the way I see them and also we have four kids. I do not want this to effect my kids. I truly need help out of this bondage. I do pay my tithes and offering faithfully, but I struggling with my husband and he shops all the time buying clothes.

Help!!

Kim F.

Michelle Singletary: You poor dear. I do feel for you. I don't have to tell you that you and your husband are unequally yoked financially. So now you have to work very, very hard to get on the same page financially. Do what you can to get him to go to counseling with you. Have you tried asking him to sign up for the Financial Freedom classes offered at First Baptist? If he won't do that perhaps there is a minister or counselor or program at his church he feels comfortable talking with. Then go see that person or go to that program. But you BOTH need to talk to someone. And keep trying to talk to him. Express your stress about the situation. Do it respectfully. But keep talking.

And most important pray about it.

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Richmond, VA: What is the best way for my elderly mother to leave her house to me and my sister?

Michelle Singletary: For the answer to that question I would suggest you talk to an estate attorney. But a will is always a good place to start.

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I got a job!!: My first job out of college... a sweet 5 figures ($30K)

What now!!

I really want a $90 haircut to celebrate.

washingtonpost.com: Grad Guide

Michelle Singletary: Couldn't you get a $20 haircut????

Seriously congrats. I remember my first real job. It was sweet. So definitely treat yourself.

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Washington, D.C.: Hi Michelle, I'm following advice to check my credit score before applying for a mortgage. What do you do if there's a delinquent account listed on your otherwise perfect credit report, and you have no knowledge of the account or the company? I did everything possible to rectify it--Experian denied my attempt to contest the item, and the company that claims I owe them didn't respond to my letters. (Oddly, they have no phone number and do not show up in a web search). The amount is small, but it seems to have lowered my credit score. Do you have any suggestions on how to clear my record?

Michelle Singletary: How much is this really damaging your score? I bet not much.

If it's this one item and it's long ago, might not be making that big a difference.

But definitely keep trying to clear it up if you don't owe the debt. Send certified letters to the creditor. You should also contact all three credit bureaus unless it only shows up on the one.

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Falls Church, Va. : Hi Michelle,

I know you need to know a lot about the poster's financial situation when giving advice but how much do you think about the economic climate? Particularly now, with real estate. I bought a condo 2 years ago for 143K and was told I was getting in at the top of the market. Now I could sell it for 220... when will it end??? How does this factor into your advice?

Michelle Singletary: I mostly try to get people to look at the complete picture. In hindsight, yes looks like you made a good move. But that's hindsight. I don't think people should buy a house they can't afford because if they don't they may not be able to afford a house in the future. Seems to me the end result is the same. House poor today. House poor tomorrow.

So when deciding whether to buy do the math. Can you afford the payment now and later. Make sure you have a cushion in case things don't turn out the way you want (job loss, etc.)

Nobody can time any market -- stock market, bond market, real estate market. So you do the best you can to look at your personal economic climate.

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Gaithersburg: Michelle, I'm in the middle of the "Your Man" book.

One thing I haven't seen addressed is effect non-spending has on meeting the S.O. of your dreams. Single people spend money on things like expensive clothes and hairstyles or cars, plus top-notch apartments, to let prospective mates know they can afford them.

How do you show them you drive a Honda on a Lexus salary as opposed to making a Honda salary?

Michelle Singletary: You don't. You just do what you do and talk....a lot. They will find out you make a good salary (although you don't have to nor should you disclose how much if you're just dating). If the person you dates suspects you have Lexus money but knows you decide to drive a Honda the conversations will tell you if that person respects your decision. If you hear for example, "You are so cheap, if I made that kind of money I would be driving a Lexus" then you know what you are dealing with or should. A shallow person.

And just because you see outwardly that people are spending on expensive clothes, hairstyles, cars and top-notch apartments does not mean they can "afford" them.

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Baltimore, Maryland: My situation is a little complex. I need some direction.

I am a 32-year old woman. I have a reliable but unfulfilling job making over $36K a year and I am looking for new employment in a different career field and closer to home. I am a part-time college student and receive tuition reimbursement. I pay tithes and give $100 a pay in offering to my church. I am renting a room in a relative's home and pay $700 a month in rent, household, and personal expenses a month. I pay myself $100 a pay. I pay around $300 in credit card debt each month. My credit score is around 650. I have $4,000 saved towards the purchase of a home through the Neighborhood Assistance Corporation of America (NACA) which helps pay for the downpayment and closing costs. I have no furniture so I have started a savings account towards that.

Situation - I have to be out of my current residence by December 31st. I want a home of my own but the housing market in Maryland is ridiculous. I do not want to move into an apartment because I would only be able to afford a one bedroom and the rent would be the same as paying a mortgage. I have $10,500 in credit card debt. I am on a break from school but would like to start back in the fall at a school in another county in which the tuition would be almost $100 more a credit. I do not want student loans. I have no other savings.

Like I said, I need some direction.

Michelle Singletary: Ok. Let's take this one step at a time.

Step One: You will need a place to live at the end of the year. Start looking now.

Step Two: If you don't want to or can't afford to pay more than you are paying now for rent, GET A ROOMMATE. Or try finding a similar situation wherein you can rent a room from someone in their home. Start the process now.

Step Three:Is it possible to take a break from school so you can pay down that credit card debt. Seriously $10,500 in credit card debt at your income level is WAY too much. Instead of paying for school take that money and aggressively pay down that debt. You need to capture that $300 you are paying in credit card debt (pluse expenses).

Step 4: You need to start living within your means. That may mean getting a roommate, taking fewer classes, etc. Trust me once you get your home if you don't have your spending under control and a good cash cushion you will get in trouble quickly.

I hope this gives you direction.

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RE: dating: I would so much rather date a person who drives a honda on a lexus salery than a person who drives a lexus on a honda salery (or, really, a lexus on a lexus salery -I value good financial sense)

Just sayin'

Michelle Singletary: And saying it very well!!!

I totally agree.

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Logan Circle: Hi Michelle - I love your columns, and love listening to you on Day to Day. My hubby and I find ourselves in a surprising (to us) situation. After taking our tax preparers advice last year to change our deductions because we bought a new home...we now find ourselves owing over $3000!! We don't have it. We could charge it, but would hate to pay interest charges for the couple of months it would take us to pay it off. Would it be better to pay what we could now (probably $1000) and pay the rest when the IRS bills us in a couple of months? Needless to say, we haven't asked our EX tax preparer for advice. Thanks!

Michelle Singletary: If you can't pay the full amount you owe here's what the IRS says:

If you can't pay what you owe on your taxes this year - there are options.

First - make sure you file your tax return on time to avoid hefty penalties and pay as much as you can upfront.

If you have a balance due, you might be eligible for a monthly installment plan.

Also you should know with a monthly installment plan you will be charged a one time user fee of $43.00, as well as interest on any tax not paid by its due date, and you can be charged a late payment penalty unless you can show reasonable cause for not paying the tax by the due date, even if your request to pay in installments is granted

If you can't pay - don't panic. Call the IRS at 800-TAX-1040 or visit our Web site at www.irs.gov for more details on tax payment options.

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Honda and Lexus: Just wanted to point out that just because someone owns a Honda, Lexus, or other type of "car" it doesn't make them a smarter, more attractive, or better person than someone who doesn't. Michelle is right. If all anyone is looking at is what you -have- - materially, then they're looking right past all the good stuff. Save that Lexus salary for a supportive Geo Prism man instead.

Michelle Singletary: You guys are so wise. Yup, you are right. Doesn't matter if it's a Lexus, Hondo or Geo...look at how the person handles their money. Do you share the same financial values? That's what you should be paying attention to.

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honda vs. lexus salary: A relevant question only if the SO of your dreams is someone who loves you more for your lexus-and-fancy-clothes salary than for who you are.

Honestly, I am all the time hearing men complain about meeting an overabundance of gold-digging women. These are the same men who go around trying to impress women with their lexus's. They can't seem to understand that their behavior is going to prefentially attract the exact type of woman they keep complaining about meeting.

Michelle Singletary: Amen!

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Owings Mills, MD: How do I approach debt consolidation when I really need it badly? It is at the point where I would like to pay one monthly payment. The interest and overdraft fees have spiraled out of control. How do I begin the process to search for the right consultants?

FJB

Michelle Singletary: It can be hard finding the right credit counseling agency. But they are out there.

To start, I suggest you contact the National Foundation for Credit Counseling at 800-388-2227. The member agencies also provide information online at www.debtadvice.org.

And when you check out an agency follow these tips:

* Watch out for high fees. In general, if the setup fee for a debt-management plan is more than $50 and the monthly fee more than $25, look for a better deal. However, if the agency is offering extra services such as budget counseling or an educational program, it's reasonable for them to charge more.

* Unreasonable promises. Creditors, not agencies, determine which concessions will be made. In fact, many creditors are becoming increasingly unwilling to reduce interest rates for consumers who enter debt-management programs.

* Suggesting services are free. Some agencies will tell you that their fees are voluntary but then will pressure you to pay the fees in full. If that happens, go somewhere else. Don't be pressured to pay. If the agency is vague or reluctant to talk about specific fees, take a walk. There are enough good agencies with low fees that you shouldn't pay an amount you can't afford.

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Rockville: Hope I can get in...

Re: "A man is not a plan" from your book.

How well does it work when one spendthrift pairs with saver who helps enforce financial discipline on the former's life. Since meeting my current S.O., I spend a lot less because he keeps me from doing it. This winter we went to Costa Rica on what I would otherwise have run up buying clothes, shoes and cosmetic products.

Michelle Singletary: I don't think it's a problem if you find someone that helps you do better financially. That's what makes good relationships good. Each person brings something to the table. Maybe he or she was just what you needed to see that not spending on stuff frees your money up for bigger better things. Sounds like you met a good match.

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Dawn-Chicago, IL: I am a 30 year old single woman w/no children who is a recent homeowner. I work full time and I just started a small business in which I work on Saturdays only. I have 1 month of expenses saved in my emergency fund. I'm trying to figure out should I save my entire earnings from the business to reach my 6 month expense goal, should I use it to pay down $4,000 debt or use 1/2 for emergency fund and 1/2 to pay off debt. HELP!!

P.S. I have a very small overhead so I use a small portion from my fulltime check to buy supplies.

Michelle Singletary: Ok. Calm down. You know you don't have to do it all at once, right?

You can save and pay down debt at the same time. And you can take you time doing both.

So, yes pay down the debt. And yes, work toward saving up the six months of expenses.

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Kansas City, MO: Your talk in KC was great! Thanks again for coming!

My salary is in the low 100s, I put 6% away in my 401K and my company matches 5%. I have over $9K in a mutual fund and I have a wonderful house with a 3.5% interest rate on my mortgage. I am in "plastic prison" with $18K of credit card debt and I've been working to get rid of it since the beginning of the year. I've changed my spending habits and am now considering whether I should use the $9K in the mutual fund to pay down the debt. The credit card interest rates are 0% to 3.5%.

Thanks in advance!

Michelle Singletary: Thank you so much. If that $9,000 is your only cash, don't deplete it. If it's not and you are not earning as much as you are paying in interest than yes pay off the credit card debt. But keep in mind you may owe taxes if you've gotten a gain in that mutual fund.

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Washington, D.C.: Michelle, hi. I love your chat and your books.

I am a single mother of two. I am about to come into an inheritance from a relative who died recently. It's a substantial sum - about $125,000. I have a couple of solid credit lines - a leased car and a couple of paid-off credit cards. That's it.

I want to buy a home but I have a really low FICO score (under 600), mostly old collection accounts. Would I be better renting or buying a home? I figured that I could rent for a year (prepaying the rent) and getting my FICO score up.

With the damaged credit, lender, of course, have been adamant that I sink every dime I'm getting into the downpayment. Is that really necessary?

What do you think?

Michelle Singletary: First, stop leasing cars!!!!!!!!

Second, I would work on gettng my credit score up.

So this may shock you and a lot of people but if you owe folks money and you just got some money do the right thing and pay your creditors. That will help you score, especially if you get the creditors to agree to report that you have paid in full (get it in writing). Also ask that they positively report your payments.

I would not prepay a rent for a year. I'm not aware that such a move will help your score.

Once you get your credit scores up you will likely qualify for the best rates and perhaps low or no down payments.

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Michelle Singletary: Well, folks I know there are lots of questions still unanswered but I have got to go. I'll try to answer some leftovers either in my print column or in my weekly newsletter. Take care and save, save, save.

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