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: Good afternoon everyone. Hope you are doing well and still saving!

Let's get started.

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Bowie, Md.: Hi Michelle. Thanks for all of your no-nonsense advice. I am trying to decide if I should rent or buy. I currently rent space in a friend's house but I am ready to move out on my own. I have excellent credit but only a few thousand dollars saved. I am currently working with NACA to purchase a home with no money down, but I'm starting to think it would be smarter to rent for a year or two to save up more money for a down payment. Because rents and mortgages are comparable in this area, is it better to go into homeownership with little money down or to rent for a while in order to save up for a purchase? Thanks!

Michelle Singletary: I always side with saving more. Even if you decide not to put any money down thu the NACA program (which is a great program) as a homeowner you will quickly find that you will need lots of savings -- for furnishings, repairs, etc.

Plus you should definitely have at least three to six months of living expenses saved up (based on the new mortgage) just in case. So stay put and save more.

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Orange County, Calif.: Thanks for your article on the disappearance of the check float today. Does this have any effect on how soon bank customers can have access to their money when they deposit checks into their account?

Currently, my husband receives checks in large amounts from an outside scholarship for his professional education program. If he deposits the check into our account, it is 10 business days before he can access the money to pay his program. One day, when he owed money to the program, he drove down the street to the bank that the checkwriter used and cashed the check. He then drove back to our bank with $15,000 in the car.

If money is going to be withdrawn from my account so quickly, why can't I deposit in at the same speed?

Michelle Singletary: Thanks. And you and the dozen other people who have e-mailed me already today are absolutely right. If the financial institutions can snatch out money quickly, they should clear our deposited checks just as fast.

So write to your representatives in Congress. The consumer advocacy groups such as Consumers Union and Consumer Federation of American have been complaining about this since Check 21 passes. But they can't do it without our help. So complain!

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Wheaton, Md.: My wife and I enjoy your column.

We want your advice on a good problem to have:

- we have no kids and have about $50,000 parked in a savings account.

- We already max out our contributions to retirement accounts.

- We have no consumer debts.

We own a home and have paid in over 25 percent of the principal, which we are renting to a tenant and more than covering our mortgage. Right now we are renting, because I have accepted an overseas position for a 2 year assignment.

The Big Question: What do you think we should do with our savings? Our options seem to include mutual funds, buying another rental property, paying down the principal on our mortgage, buying CDs or what?

Your $0.02 would be appreciated!

Thanks!

Michelle Singletary: What a great problem to have. Whenever I get asked this question I ask, What do you want out of life?

By that I mean what are your financial priorities?

Right now because I have 3 rugrats mine is paying for their college education. So any extra money I have I stuff into their college funds. We also believe in helping other family members go to college so we've taken extra money and paid for a niece to go to college.

Next I want to be debt free. So extra money goes to paying off my home.

What do you want?

If all the other bases are covered -- retirment funding well, no consumer debt, emergency money -- yours might be getting rid of your home mortgage.

If other the other hand you want to go into business renting property you could use that money for a rental purchase BUT only if that is in your master life plan. Don't do it just for the money.

If I were going overseas I wouldn't want to take on another rental property. So if in your position being debt free is a life goal, pay down the mortgage further.

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Oakton, Va.: Michelle,

Thanks for the chats and columns. My wife and I are always asking ourselves WWMD (what would Michelle do?).

My question is this. We are moving in the next month to a bigger house to accomodate the recent arrival of twins. We are considering an interest only mortgage to lower our monthly payment by several hundred dollars. This would serve us in two ways, 1 - the lower monthly payment would be a psychological comfort, and 2 - as a part time realtor, I have irregular commission based income. I qualify for a conventional loan, but the interest only's lower payment would let me take commission checks and make lump payments towards the loans principal. With the conventional loan, I don't think we would be disciplined enough to pay down the loan this way.

I compared the amortization table of the conventional loan against the interest only with lump payments every 3 months, and I would pay less interest over the life of the loan with the interest only paid this way. Am I just rationalizing my decision?

Thanks!

Michelle Singletary: I LOVE that WWMD ... got to show that to my husband :)

Well, me, I would go conventional. Why? Because the best laid plans often go awry. In this market what if those commission checks get smaller and smaller.

You see I like to base my debt payments on the worst case. That way I really know if the debt I'm taking on is affordable.

Interest-only and teaser rates give you a false sense of security. Everyone says they will make extra payments but then stuff comes up -- babies need more than you think, daycare cost more than you think, someone wants to come home to stay with babies, business doesnt' go as you plan.

You even admit you don't think you would be disciplined enough to make the extra payments under a conventional. You either are disciplined or you're not. It's so easy to fool yourself.

So take the safe road in this market.

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Bowie, Md.: Have you ever had to sell a house and buy a house at the same time, or heard of a situation? I'm selling soon, and will need to move across town, but will most likely rent before I buy. Reason is that I need the profits from the sale for the downpayment.

If this was a perfect world, one could probably settle on the same day, for both selling and buying a house. But, it's risky.

The sell could not go through, and you could be stuck with losing your deposit on the buy if you can't make the downpayment. Have you ever heard of instances where a buyer shows up at the settlement and comes up X dollars short and the seller sucks up the deficit just to get the rest of the money for their own downpayment on their buy? How can you prevent such a lowball tactic?

Michelle Singletary: Oh my, my my. Please, please read all the news of late about the mortgage mayhem out there. I had a dear, dear friend who was going to do that two house thing. Move and sell at the same time. The problem was she couldn't sell her home. Then the rates went up and she couldn't even afford the new house.

You my friend could quite possibly get stuck in this market paying two mortgages. And if you dont' have the money to do that I wouldn't buy until I sold -- unless you have a very good cash cushion.

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Washington, D.C.: Hi, I love your newsletter and chats. I'm 28 and want to change careers. To do so I need to go to grad school. I already have a few acceptance letters. This is my problem, I have saved about $25K over the years. Should I put this money towards grad school, or invest it long term or short term. To me it seems like a waste to spend the money on grad school since I will be in debt any way and I can grow the money through investing. In the long term isn't better to have a cushion in case I have problems finding employment after school. How should I split my money?

Michelle Singletary: You won't be "wasting" $25,000. You will be preventing yourself from taking on massive loans with high interest rates in this market.

When you invest you put your money at risk. You can't afford to do that. You need that money. Debt is not good even when it's used to pay for a higher education.

And yes, before you go you should have a cushion on top of the money you saved to pay for your education.

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Vienna, Va.: Hi Michelle,

My wife and I have finally taken the credit cards out of our wallets and are paying them off as fast as we can. We are both federal employees and put the max into our Thrift Savings Plans. Would it be better to temporarily reduce how much we put into our TSP in order to pay off our credit cards faster? I owe about 4K and my wife owes about 4.5K. Thanx!!!!

Michelle Singletary: If you think you can pay down the debt without interupting your retirement savings I wouldn't pull back.

However, if that debt is at high interest rates and you need the money because you've cut expenses to the bone then yes cut back on retirement savings (not enough to give up any match you get) and pay down your debt.

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Washington, D.C.: Hi Michelle, I love your columns and chats. I've learned a lot. My only debt is the mortgage on my condo. In order to pay it off sooner, any extra check I get (reimbursements, mail in rebates, etc.) goes directly to pay off the mortgage principal. I've recently started doing rhia and I have set a goal of extra money I should put towards the principal per year (aside from the monthly payments). I want to pay it off as soon as I can and part of the reason is reading your column and chats! Thank you!

Michelle Singletary: You are welcome. And when you can shout "I'm debt free" give me holler!

I want to rejoice with you.

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Arlington, Va.: Michelle, I know your anti-debt stance is well-known, but there are some people who still prefer to have a credit card to keep their credit score up or just because it's easier. (I for one don't like to carry too much cash and I only write checks for my mortgage.) So I got myself an American Express card, one that has to be paid off every month. It's a good reminder to not spend beyond my means while preserving my credit rating. What's your take on cards that don't let you carry a balance?

Michelle Singletary: It's hard to tell tone in these things but you say "anti-debt" like its a cuss word.

Credit is evil. We can't win at their game.

But I will give you that it's convenient and that's why so many of us use it (including me).

However, I think it doesn't matter what plastic you have the goal should be to pay the bill off every month. If you can't, you are in trouble.

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Halo vs. Horns: The issue isn't good and bad debt. It's whether you want to be in a position to have to pay for something.

Why is it OK to have a mortgage? Because you have to have housing. It's OK to have a student loan, because you have to have an education. It's OK to have a car loan because either:

1. you have to have a car; OR

2. you can escape the debt by getting rid of the car

There are two point embedded here:

A. You only want to put yourself into must-paying for things you must-have (housing, medical care, insurance, food)

B. You don't have to pay for something IF you can get rid of the debt and item simutaneously (a second car)

What you never want to do is be in debt that you can't escape for something you don't need. Most things on your credit card fall into this category. So do things like health club memberships that are not month-to-month cancellable. (Careful on this one; they call it "monthly dues" but you're often committed for a couple of years.)

Citation: "All Your Worth" by the Warren-Tyagi team that wrote "The Two Income Trap"

Michelle Singletary: It's not OK to have a mortgage.

It's not OK to have a car loan.

It's not Ok to borrow to go to school.

We have been bambozzled. Debt makes you a slave to the lender. Watch what happens if you lose your job, get sick or disabled.

That mortage, car loan, student loan, credit card loan doesn not look OK then.

The only way to be OK is not be a slave to the lenders.

But most of us mere mortals can't buy a house outright. So we have to borrow.

But we don't have to borrow to own a car or go to school. We choose to do that because we can't wait to save for it. We can't take the bus (and yes, yes I know many of you couldn't get to your jobs without a car). We won't advise our kids to go to community college or stay local.

What I'm trying to do with my "anti-debt" message is to get people to stop and think about the debt we take on.

There is no good debt. The only good debt is no debt.

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To the aspiring homebuyer: Michelle is absolutely right. You'll need at LEAST 6 months' living expenses saved -- you'll probably spend one month's worth on new curtains, furnishings, etc. Think about what the WORST thing is that could happen -- you need a new roof, new washer/dryer, etc. -- and make sure you have enough to cover it.

Michelle Singletary: Amen!

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Bethesda, MD: Hello Michelle

Love your chat and your show on TVOne! I have two questions for you. First, if you can only do one at a time, which is preferable -- use your extra income to build your emergency savings or pay off your debt? (Currently I have about 1 month's worth of expenses saved; however, I have five-digit consumer debt that won't be going anywhere anytime soon.)

Also, in career planning, how do you make a decision about following the money vs. following your passion? (I am especially interested in your opinion on this as you studied journalism in college -- would Big Mama have preferred you do study something more "practical" like accounting or business administration?)

Thanks so much!

Michelle Singletary: Why thank you very much. And you forget my segments on NPR's "Day to Day" show which you can hear online at www.npr.org and now they are putting them on podcast. Just imagine you can hear me preach about debt as you catch a plane, workout, eat :)

Ok, so the trick with paying off debt is that you have to save something otherwise when life happens -- car breaks down, kid got to take a school trip-- you end up using your credit card.

But with one month saved up I would aggressively tackle the debt with the extra money. If you can still keep savign something even if it's just $5 or $10.

And if you are in massive debt you might not be able to afford your "passion." Get out of debt than pursue your dreams unless the job is causing major mental or health problems.

And child my grandmother is jumping up in heaven cuz journalism been good to me financially.

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Upper Marlboro, MD: Michelle,

I love your chats and try to follow your philosophy regarding debt. Here is my question. Between us, my fiance and I are getting back nice sum of money on our tax returns. We want to spend about $5,300 dollars to get married, but I am even having heartburn about doing that. It will small and nice and I think, very reasonable, (the $5,000 includes photography, reception, everything). Please tell me it's ok to use some our in tax returns for this wedding, all I keep thinking about is a 3 month savings. After the wedding, we have enough to put about 1 month away, but without the wedding, we could put away 2, almost 3. What is your advice, is it ok to spend for this special occassion?

Michelle Singletary: Now those of you who know me don't scream...but go have your wedding.

If you can spend $5,000 without incurring any debt and that includes the reception and photography go on to the chapel.

Having one-month is a good start to your marriage.

My prayers and best wishes on your nuptials

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Columbia, Md.: I will miss the chat, but wanted to know how to get stuff off my credit report. I must have about 10 - 15 student loan companies because of their buy-sell efforts. My loans have been paid off for 13 months now (in 8 years, too). Some of the loan information is from when I first got them 12 years ago.

The same goes for credit cards that I don't use or have cancelled.

With all that said, my average score with all three was 805 and I "qualified" to purchase a home worh $350,000 (not that I would as that would leave me broke), so I have nothing to be ashamed off.

Some of the comments on the form was "too many" accounts, however. I only use one credit card and that's to get the 5% back (Discover), and I pay it off every month. I owe nothing else.

Thanks!

Michelle Singletary: To my knowledge there is no requirement that the bureaus have to remove positive information. Now if those loans had been paid late they yes you have some recourse. Negative information is required to be removed after 7 years.

But with scores above 800 go outside and play. Visit friends. Volunteer. Just stop worrying about this cuz you are credit golden.

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Bowie, Md.: I have a credit score of 688, and I make $40,000. I pay myself first each paycheck. $10.00 is all I can afford. I pay my bills on time all the time. I am struggling to pay down credit card debt, personal loans, and student loans. Also a tax bill from the IRS. I am able to pay all my bills but have hardly any money left over. Any advice on things I could do to elimate debt?

Michelle Singletary: Well you have two options. Cut expenses. Increase your income.

If you are living alone, get a roommate. Cut out everything you can possibly cut. If you done all that, then you may need a second job at least temporarily to aggressively pay off the debt.

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Philadelphia, Pa.: Hello lovely Michelle,

I bought a house last year and I hold down expenses by having two tenants who rent rooms from me. What level of liability insurance should I have? My insurance agent said $300K was enough with $5K in medical coverage for anyone injured on my property. I worry that it's not enough, but how much is enough? My house is worth about $150K and my salary is about $50K. Thanks!! I love your columns and chats.

Michelle Singletary:5k for medical coverage seems low. Go back to your agent and really discuss your living situation. I'm not sure but can't tell if you have an "umbrella" policy. For not much a year you can get $1 million coverage.

I have it.

And if you aren't happy with your agent or he or she wont' really help you analyze this get another agent.

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History Lesson: My father said credit cards did not exist until after the 1960s!!! He remembered the D.C. Shopping Plate (Garfinkels, Hechts, Woodies, and Kahn's) but they had to be paid off at the end of the month. Sears credit cards were used on appliances, primarily.

I remember when most stores had a 90 day layaway policy for clothes. This was about 16 years ago. On payday, you paid on your layaway. Then when it was paid off you got your clothes. Parents put winter coats and clothes on layaway in July and Christmas gifts too.

Not too long ago, debt was not king.

Michelle Singletary: It should have never been elevated to King.

And I remember lay-way too. That's how my grandmother, Big Mama, paid for our clothes.

Ah, the good old days!

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Washington, D.C.: Hello Michelle --

Liked your Sunday piece on credit card hardball; what a cautionary tale. Just wanted to let you know the card issuers give you a hard time when you are trying to get out the door, too. On Sunday afternoon I called to cancel a credit card I rarely use. A series of customer service reps offered me airline miles, lengthening my billing cycle, etc. They did not want to take no for an answer. I can see why it is so hard for many folks to get out of the trap.

Thanks for all your great work.

washingtonpost.com: How They Rig The Credit Card Game

Michelle Singletary: You are welcome.

That's how slavery works. Who would want to get rid of people willing to pay interest on stuff they've long forget they bought.

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Waldorf , Md.: I am a 21 year old year girl. I want to try and maintain good credit. I have constant worries about my credit. I want to try to establish good credit so the future will not be hard for me. What are somt steps that I can take to achieve this goal. Is it better to not have any high balance bills? What is a good credit score to maintain?

Michelle Singletary: It's better not to have a balance at ALL. The best way to have good credit is to pay your bills on time. If you are doing that you are well on your way to establishing a good credit history.

And if you can achieve credit scores (you have three from each credit bureau) of 700 or more, you are in good shape.

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Arlington, Va.: For the person with a lot of extra money laying around, I am in the same boat. About $80K just sitting in the bank, no debts other than a mortgage that was taken out several years ago. My home is worth about 3x what I owe. I have a pretty good nestegg growing in my federal TSP, will have a FERS pension when I retire, and am socking away quite a bit of extra money every month. This is certainly a great problem to have. I was at a total loss though since I know nothing about investing. I made an appointment with a financial planner. I am paying him $650/year and that includes planning services and quarterly meetings to make sure that everything is going according to plan and make adjustments as necessary. I think it is money very well spent. Depending on how long you have until retirement (I have 20 year or so) and what you risk tolerance is your planner will make recommendations. Mine has me investing in 4 different mutual funds to cover large cap stocks, small/mid caps, and internationals. Of course since I just got started now with the market falling it is a little sad to see some money go away, but hopefully over the long term it will bounce back.

So, what I am trying to say is, if you don't know what to do hire a planner who works on a fee basis. I am very glad I did, and wish I had done it sooner.

Michelle Singletary: Good advice.

And pay off that mortgage.

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Orlando, FL: My 27-year old son will be graduating with his Masters in Counselling on May 11th and has asked me to help him choose between

https://loanconsolidation.ed.gov/appentry/appindex.html or www.cfsstudentloan.com to consolidate his student loans. Also, he plans to continue on for his doctorate.

I'm a single mother and we plan to evaluate these two options this weekend and would really appreciate your assistance and guidance in any possible way that you can offer. Thank you.

Michelle Singletary: A great site to visit is www.finaid.org

The thing with consolidation is you want to look at the perks -- do they give your son an interest rate break for on-time payments, etc. The bottom-lines rates are competitive so you should look at what they offer borrowers.

And perhaps you might advise your son to work a bit to pay down his debt before taking on more debt for his doctorate. Just a thought.

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DC: Hi Michelle, do you know anything about borrowing against stocks to get loans for grad school? I'm just starting the process of figuring out how to finance a two-year masters program and am completely confused. Thanks for your help!

Michelle Singletary: How about selling the stocks to raise cash to avoid debt debt (obviously considering the tax implications)?

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Arlington, Va.: Have you seen the film, 'Maxed Out' yet? If so is it worth seeing? Buying the book?

washingtonpost.com: Read this month's Color of Money Book Club column about this book and film: A Horror Movie For Our Times (March 4)

Michelle Singletary: Seen it. Read the book. Recommended both in a recent column.

Great cautionary tale.

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Hamilton Square, N.J.: Thank you for your column. I find it very interesting, especially your anti-debt campaign. In principal, I agree with you.

Here is my situation: I have about $6000 in credit card debt. I have been using 0% interest offer credit cards for years. I transfer from one to the other, never getting one that is less than 1 year. The one I have now is for 18 months. I always pay more than the minimum. I have never paid any interest on my balance. My credit score is 790. I rent an apartment and paid cash for my car. I can afford to pay off the balance if another offer doesn't come my way before this one ends. (I usually have many more than I need.)

Please tell me where my logic is faulty.

Thanks again for your advice.

Michelle Singletary: I just have no idea why you would want to hang onto $6000 in credit card debt.

You seem proud that you are playing the game. And perhaps for right now it appears you are winning.

But life happens often and you could get tossed out of this game quickly and with some messy results.

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Anonymous:"If he deposits the check into our account, it is 10 business days before he can access the money to pay his program."

If you think this might be wrong, talk to your financial insitution. The applicable rule of law is "Regulation CC" which governs how long a financial institution can hold your funds before making them available.

http://www.federalreserve.gov/pubs/regcc/regcc.htm

The above link is to a brochure by the Federal REserve RE: Reg CC.

You do have to keep in mind the definitions of things like of "local check" vs. "non-local check" - it has to do with the location of the financial institution on which the funds are drawn, not the location of the person writing the check.

Note - little things can affect the applicability -if you deposit into a savings account, that isn't covered int he same way. Always deposit into a checking account.

-a former bank examiner

Michelle Singletary: Thanks. Passing this along.

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New York, N.Y.: Michelle, Michelle! I finally paid off my credit card debt TODAY! It was $14,000 at one point (don't yell at me), so I'm proud. Now the question is what to do with my "surplus." I was paying off $1,000 a month, so I'd like to keep "paying" that $1,000 into something while I still have the discipline.

I have a 401(k), but I wonder about other ongoing savings plans. Should I do an IRA? Money market? A new $1,000 CD every month? I won't need immediate access to the money since I have technically "lived without it" -- it would be $1,000 of newfound cash each month.

Thanks!

Michelle Singletary: Ok EVERYONE ON THIS CHAT whereever you are let's shout out

AMEN! If you're at work just whisper it!

Bravo or Brava to you!!!!!!!!!!!!!!!!!

As I told someone else..the what now depends on your financial goals. If you don't have an emergency fund use the money for that. If you are funding your retirement at a good pace then pay off your car or pay down your morgtage.

But the thing is now you have choices!

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Washington, D.C.: I just got a largish expense reimbursement check from work that is going to pay off my two lowest balance credit cards (I'm doing a snowball by balance - it's within a few dollars of doing it by interest rate and makes me feel more accomplishment).

That makes three that I have paid off since I started in December. I have more to go than I want to admit (bad choices, bad choices), but the path is becoming clearer.

Thanks for your advice. I don't always agree with you, but you still inspire me to do better with my finances.

washingtonpost.com: Make Wise Use of Windfalls (By Michelle Singletary, March 8)

Michelle Singletary: Why thank you. And you don't have to "always agree" as long as you recognize I'm almost always right :)

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Washington, DC: Michelle, I really value your advice for saving, but am at a total crossroads.

I just got into grad school - planning on going part-time. I'm expecting to receive a good portion (about half of tuition) in fellowships. Yet I don't know what to do about the other half.

I thought about working for the school, but my annual salary is far more than what I'd be making there. I'm saving quite a bit - almost enough to pay off that other half.

But, I'm wary of putting all my savings into school. I've got my three months cushion, car is paid off, 10% of my salary is contributed to my 401k, and no other debt except for 10,000 from undergrad stafford loans, which I feel is managable. I just feel like I should be saving for an eventual home, etc.

I'm 23 if it matters.

Thoughts?

Michelle Singletary: Child take that money and pay off those loans. You've got all the other bases covered so make this a home run.

Your savings grace is not having debt.

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Washington, D.C.: I'm an undergrad student at the George Washington University. I currently hold an unpaid internship at Smith Barney Citigroup, and have not been working to subsidize my college expenses. I've been considering taking out a Fannie Mae student loan for about $10,000 in order to get by the rest of the academic year and possibly be able to get situated in NYC for a summer internship before starting to make money with that. I don't have the exact name of the loan or how much the interest rate is, but I'm wondering if this is a good idea or not? It seems like my only option at this point in time. Thoughts? Is there a better alternative? Thanks. -- Rob

Michelle Singletary: Get a paying job on the side.

Don't go the debt route.

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Washington, DC: how do you feel about gifts to charity? I was able to dedicate a room to my parents at a local hospital where they live in FL.

Michelle Singletary: What a wonderful thing you did.

My husband and I tithe.

I believe charitable giving should be a great part of your budget.

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Washington, D.C.: I have been unemployed since December, and am sick about hitting my savings. I'm wondering if my time is better spent looking for something full time, or getting a part-time gig that doesn't pay much to stop the hemmoraging. Thanks.

Michelle Singletary: Don't feel sick. That's why you saved. But perhaps you should get some kind of work while you look for the best employment so you don't completely run out of money

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Michelle Singletary: Well folks that's it. So sorry if I didn't get to your question. But keep an eye out in my print column and e-leter, which I hope you subcribe to. I'll try to answer some in those forums.

Hope you have a wonderful day.

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