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.

Submit a question or comment now or during the discussion.

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

A transcript follows.

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Michelle Singletary: Good afternoon all. Already there are many, many questions so let's get started.

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Stafford, Va.: Michelle,

I've been in my home for 4 years and now planning to get a equity loan off the equity in my home. Equity line of credit or a fixed equity loan? Please help....

Phiilip

Michelle Singletary: Before I answer. What do you want the money for, which by the way isn't your money. It's the bank's money.

But if you find you absolutely need to borrow money go for the fixed rate.

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Washington, D.C.: Hi Michelle,

I seem to be going through a revolving door. I pay off a credit card and then find myself running it up again. Is it best if once I pay it off I cancel the card? And if you cancel all your cards, does that affect your credit? Can you cancel a card before you pay it off and not affect you? Thanks

Michelle Singletary: Hi. This isn't a credit card problem. It's a cash problem.

Sounds like you don't have a "life happens" fund. Now that's different from your emergency fund, which you absolutely should have. The emergency fund should have 3 to 6 months living expenses. You don't touch that money unless the worst happens -- job loss, long-term illness, roof flies off your home, etc.

The life happens fund is to cover your everyday expenses, car repairs, things like that. It is your revolving door fund keeping you from charging such things.

As to your credit card. Take it out of your wallet, purse or whatever. You don't need to cancel it because well, if you don't have discipline, you will just open it back up. In some cases canceling a credit card can lower your credit score.

But I don't want you to focus on that. Focus on building up a cash reserve so you won't be a slave to that plastic devil!

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Chantilly, Va.: Michelle: A small money matter, but something we all should know. The "forever" stamp that will be issued by the post office next week is not a good deal. My recollection is that the average increase of a stamp over the last decade is between two and three percent. Meanwhile, you can take that money you pay for that forever and get five percent in a CD, about double. Oh yeah, you can lose the forever stamp. Am I right on this?

washingtonpost.com: These Stamps Are Forever, but the Savings Are Not

Michelle Singletary: Well, I was right on this when I wrote about it recently :)

Actually you can buy the "Forever" stamp now. It cost 41 cents, the same as a first-class stamp. But you are right, no need to stock up on the stamp.

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Scrooge/new home: Last Christmas I wrote to you saying I was feeling like a scrooge for not doing expensive holiday plans since I was saving up to buy my new house. Well last week I closed on and moved into my first house. (30-year fixed mortgage 20% down) Woot!!!

Now I feel real good that I was fiscally responsible for years and put a lot of work into making my credit score better.

Any financial wisdom for a broke new home owner?

Michelle Singletary: Keep saving! You will need the cash. And as Scrooge learned, the holidays aren't about the presents anyway. Or it shouldn't be.

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Fairfax, Va.: Hi Michelle! I loooove your chats! I have a question that I hope you can give some advice on. My credit is in the poor-to-fair range. I checked my credit report and found out that I have a card with a maximum limit of $300 from 2000 or 2001. I never used it so its always had a zero balance (can't use something you forget is there!) If the interest rate is decent should I start using it to bring up my score? I figure that with a low max like that I can use it for groceries and gas, things that I'd already pay cash for and just pay it off right away (and yes, I'll really do that).

Also, I'm taking a financial class through my church that emphasizes zero debt. You'd love it!!

Michelle Singletary: Well, I wouldn't use the card. You don't need to if you have other debt -- home loan, car loan, etc. Just paying those bills on time will have the biggest impact on boosting your credit score. If you have other credit card debt and you are near maxing them out, that hurts your score.

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Overland Park, Kan.: I value your advice and expertise. What are good resources to study for a 50+/60+ couple considering marriage in a couple of years to use, in terms of combining finances, budgets, and assets, to make the financial aspect of the pending 'joint venture' as successful as possible? In our case, both of us are financially responsible and stable, plan to work at least 5 more years (to 58 and 65, respectively), have good incomes and retirement assets, no debt. My main concerns would be how to purchase a home together and ensure the surviving spouse is provided for long term; secondarily preserving some assets for surviving adult children. Thanks in advance.

Michelle Singletary: Well, I believe married couples should join all income and bank accounts. To do that you should take a premarital class (yes, even at your age). Discuss everything financial. Share everything financial. If you join assets the spouse will be taken care of. As for children from previous relationships do that with a will. For that you should get qualified legal advice.

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Washington, D.C.: In DC if you marry, is your spouse necessarily responsible for student loan debt. If - god forbid - something were to happen to me would my fiance be responsible for my debt or if we keep the loan in only my name would that safeguard him from that debt?

Michelle Singletary: First, just so you know as of July 1, 2006, federal law no longer allows joint consolidation with your student loan debt with your spouse. Before that the advice was don't join student loan debt with your spouse.

And generally if a borrower dies or becomes permanently and totally disabled, federally-backed student loan debt can be cancelled.

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Rockville, Md.: So, when will you be writing a column about the most effective uses of Post Points?

washingtonpost.com: Post Points

Michelle Singletary: Ah, is this a trick question?

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Washington, D.C.: I'm a single mom with excellent credit, in my early 30's, have my own home, my net is good, I'm saving for everything, and moving up in my career. My car is 4 years old nearly paid off and starting to show signs of serious wear. I could sell it and walk away clean w/ $11k. I have averaged 13k miles over 4 years. What's your take on leases (15k mile/year)? My concern is what I'll have to pay to maintain my car as it ages (increasingly so now), and what I'd have to shell out to get another one when it dies on me. HELP please!!!

Michelle Singletary: Now why would such a smart woman do such a dumb thing?

I was so excited as I read your question. She's got good credit, owns a home, is saving. Then BAM! That word came up. Lease.

Dumb, dumb. dumb.

Already some car leasing pusher-- I'm sorry car dealer -- is writing me a note. I know it. Or someone who was foolishly persuaded that if they traded cars every three or four years and drove only 15,000 miles a year that a lease makes financial sense.

Hogwash.

If you maintain your car -- get the oil changes, fix what breaks as soon as it breaks (with your savings) no reason why you can't hang onto that car for another 6, 7 or 8 years.

Really how much in repair costs are you talking because I bet it's not anywhere near the cost of a lease and then another lease or another car since when that first lease is up you have to get some other vehicle.

Stay smart. Don't lease. Fix what you got and put the difference in the college fund or funds for your kid or kids.

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Washington, D.C.: The lease on our car is up, and we'll be buying it. Instead of financing through the dealer, we're looking at auto loans from credit unions. Any general tips? We've never done this before. (By the way, in the years since we got the lease, we've done a lot of financial self-education, and we bought our second car used!)

Michelle Singletary: More on leasing...

A credit union is a good place to get a loan. Every car loan I've ever had came from a credit union.

And get more financial education so you will never lease again.

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Washington, D.C.: Hi Michelle,

I look forward to your chats and religiously read your newsletter. I am glad we are able to ask questions anonymously, because I have a very basic one:

How do I figure out how much house my husband and I can REALLY afford? We have no children, no debt at all (pay credit cards at the end of the month, no car or student loans), have credit scores of 800 and 820, 3 months of emergency fund,and have 80,000 to put as a down payment (saved over 7 years).

I think we're finally ready to take the plunge.

Thank you very much.

Michelle Singletary: I think so too, based on the limited amount of information.

But when you go home shopping qualify yourself on your NET income not on the GROSS numbers the lender will use.

Keep your monthly housing expenses to 35 to 38 percent of your net monthly income.

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Washington, D.C.: I enjoyed your recent column very much. Do you know if women, like racial minorities, also get worse rates when negotiating loans at car dealerships?

washingtonpost.com: Minorities, the Auto Loan Losers

Michelle Singletary: That's an interesting question. I haven't seen any recent studies on that. Anyone know of such research? I do know that studies show that far more women make the decision of which car to get for the family. So I hope those women are doing their homework and getting interest rate quotes from their bank or credit union (if they are a member) BEFORE car shopping.

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Woodbridge: What would you say the best money tip for 20 somethings is? Also, is it wasteful to think of using a financial planner at this age and how do we go about finding one? Thanks!

Michelle Singletary: Top tip for a 20 something or any something

1. Live below your means!

And no I do not think it's wasteful to hire a professional to help you with your finances. The best place to start is to get a recommendation from friends or family who have an adviser.

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Bowie, Md.: I have a mortgage from Chase. I wanted to pay my mortgage bi-weekly but they will not accept the payments this way, instead they will hold the payment in something called "suspense funds until the balance is received. Alternatively, they will allow me to enroll in their "Equity Acceleration Program" for $350 and a $15 service charge per month and will withdraw 2 payments a month. Is this legal? It doesn't seem ethical at least.

Michelle Singletary: Don't sign up for that expensive biweekly plan. That's something you can do yourself.

To do this yourself, take your monthly payment and divide it by twelve. Add that amount to your monthly mortgage payment. Be sure to indicate the money should be applied to your principal.

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Woodbridge, Va.: I have a 401(k) with my employer, as well as a two additional ones through a bank. I am considering cashing the one at the bank to payoff credit card debt incurred while helping family members. I am strapped for cash and my bi-weekly paychecks do not always stretch far enough.

I am aware of the penalties, but running out of money is starting to be a burden.

What are your thoughts about cashing in a 401(k) to get out of debt.

Michelle Singletary: I would still say don't do it. Can you get another job? Can you cut more of your expenses?

Spend the time to get yourself out of this jam without leveling your retirement fund. Do that and you will not likely be in this jam again.

I do believe in helping relatives but not if it means going into debt yourself.

Don't do it.

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Upper Marlboro, Md.: Michelle,

Help me. I got into a bad house deal that is basically, I signed a contract without a contingency and wasn't able to sell my house. I signed a construction loan (which should never have been approved!) with no permanent financing and can't obtain permanent financing without selling my house. Have met with my attorney (should have got that before I signed the contract)builder and lender and they are trying to help sell current house, but if that doesn't happen and the builder doesn't agree to buy back the house, I will have to do a deed-in-lieu of foreclosure or a straight foreclosure on the new home and I have already told the lender that. I am so pissed at myself as I should have known better than to do this. I have only my current house as debt and a 793 credit score and about to ruin it all with this stupid housing decision. Is there anything else I can do? How bad of a hit will my credit score take and what do I need to do to rebuild it after this over? I will still have my current home but I worked so hard on my credit rating and now this.

Michelle Singletary: First, forget about that darn credit score. What does that matter in this situation?

Your situation sounds so complicated and I have so many questions. But it appears that you really can't afford the new house so why don't you spend your energies concentrating on keeping the home you have.

Yes your score will be damaged if you have to default on the new home loan financing.

But in time you can get back on a good credit foot.

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Vienna, Va.: Michelle,

I'm working on moving out of my parents' house. I've been living here for the past year since I graduated because rent is just so darn expensive around here. I have a good job and make pretty good money for a recent graduate but I just haven't taken that step to move out yet.

My question is, how should I determine my price range for an apartment? I've heard you don't want to spend more that one third of your paycheck on it, but is this before taxes? after? before or after I take out 10% for my 401k? Does that include utilities? What do you recommend?

Michelle Singletary: I think you should stay home a little while longer if you haven't done the following:

-- saved up three to six months living expenses

-- have a fund to cover regular expenses, car repairs, etc.

-- gotten financially comfortable with putting money away for retirement.

Now you shouldn't spend more than 35 to 38 percent of your NET pay on housing. And no net wouldn't include what you are putting away for retirement. Net would be after taxes.

So do some homework. Find out what it cost for an apt. Look for one, two and three bedrooms because you might need to get some roommates.

Then figure out all the other costs of living on your own, food, utilities, cable, washing your clothes (if the apt. wouldn't have a washer and dryer)...all the things you may be taking for granted at home.

Once you've run the numbers you will know whether it's time to move.

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Atlanta: But michelle, virginia needs some money. And she/he's not saying: cash out all of my retirement savings, but just a portion - to pay for loans.

The whole idea of retirement in this country is what's killing us - we're all just 'looking forward to retirement (really, when other people can pay all 'my' expenses, cause i really don't want to work all that hard). It sounds like we're all just wanting to not work - whatever happened to a work ethic? The idea of saving for retirement is for saving for when you aren't able to work - which will probably be a few years at the end of life -until then, just keep working if you have to.

Sorry for the diatribe, but it's getting so that people only discuss how they're going to -stop- working.

Michelle Singletary: Rant aside, let me be clearer.

I don't care if you want to take some or all of your retirement money...don't do it.

Now about all this fuss about retirement. Please. It's necessary even for those of us who still plan to work after retiring from our lifetime jobs. I do plan on working but not as hard or as many hours as now. So I still need savings. And what if you can't work, as many seniors can't.

Paying off credit card debt is not a good reason to take that big hit you'll get if you cash out any part of your retirement money.

About to be put out of your house --yes. For the plastic devil. No.

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Clinton, Md.: We're trying to reduce credit that was secured at high interest rates. My husband and I currently have $20,000 home equity loan and 2 car loans that total $31,000. One of them is at an extremely high interest rate.

First, is is possible to get another equity loan at a lower interest rate to pay off the first loan and take out additional money for bill consolidation just have one bill instead of 3 very high bills?

Michelle Singletary: Stop using borrowed money to get rid of borrowed money.

Spend more time figuring out how to pay off the debts you have with an extra job, cutting expenses, etc.

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Washington, D.C.: Ok, ok. I'm the smart woman who was thinking of leasing. I've religiously maintained my car since I bought it. It's only my 3rd car. The first was a 1977 Toyota Corolla, the second a 1995 Toyota Tercel that is STILL in the family (passed down twice so far). My current car is not holding up like the last and I'm afraid I'll end up paying more in the next year to continue to maintain and fix the mystery problems. So, hold out and pray?

Michelle Singletary: Hold out and pray.

The only exception is if the car becomes so unpredictably unreliable that it keeps stranding you.

Otherwise you still won't spend as much in car repair as a lease or another car note.

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Germantown, Md.: My husband of 2 years and I made the most we've ever made last year, 85k. We have 2 kids in daycare, and one in college. We live in a 2 bd 1 bath condo I bought 5 years ago. We live very very simply, and are just scraping by. Are we doing something wrong? Or are we just not making enough to make it in this area?

Michelle Singletary: It's a tough area financially. But you've got some major expenses, daycare and college.

And remember that $85,000 I'm assuming is gross. So you aren't bringing all that home.

Don't beat yourself up.

Take a look at your budget and see what else you might do to give yourself some breathing room.

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Banks and car shopping: When looking for a new car, how do you shop interest rate at your bank? Do you ask for the rate they can give you and the amount they are willing to lend?

I tried to do that once with car insurance, but was told that without a VIN number, I couldn't get any estimated rate.

Reston

Michelle Singletary: Call your local bank and credit union. Tell them the car you are interested in getting and the price, loan term (NO MORE THAN 48 MONTHS FOLKS). They will probably pull your credit report/score and let you know what rate they will offer.

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Loan v. Lease: Michelle,

For me, looking at the numbers really helped me see the loan v. lease scenario (i'm a tangible application kind of girl). Say you could get a car loan for $250/month or a lease on the same car for $150/month, both over 3 years (using simple numbers - I don't think you save $100/month)

Loan: Pay $9000

Lease: Pay $5400

On paper, that looks great, but because when the lease is up, you'd (1) have to turn the car in for no money and (2) end up having to re-lease, with these numbers if you keep your car for only 2 years more (the lease is about $1800 a year), you end up ahead AND still can sell the car for some money (with these numbers, probably at least $2-4K) instead of turning into the dealer for free.

Michelle Singletary: People often lease because they want a more expensive car than they can afford to buy.

Your numbers, my numbers, their numbers...a lease is a fleece as radio host Dave Ramsey often says!

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Silver Spring, Md.: So my husband and I will have paid off all of our debts (with the exception of my law school loans, since I'm graduating this week) within the next 3 months. To do this we have been on the budget equivalent of a crash diet. Beyond eating out once a week, our budget has basically been "spend as little as humanly possible and put all excess towards credit cards or car loans" (we already put a small amount in savings every month). It hit me last night that in a few months, once I'm working, we will be able to afford occasional new outfits or shoes, and other little luxuries.

I feel as if this will be the equivalent of the maintenance period after a diet. Any advice on how to enjoy little things while still staying on track with savings and keeping debt gone?

Michelle Singletary: I say you should stay on the crash diet until you pay off the student loan debt.

Often people in your position -- doctors and lawyers, etc. -- get out of school after living on nothing and decide it's time to treat themselves even tho they have $80,000, $90,000 or more than $100,000 in student loan debt.

Don't fall for the trap.

Stay the course a little while longer until you are free of that debt.

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Washington, D.C.: Another house shopper here. When you say keep the expense to 35-38 percent of net income, do you mean after tax income or do you mean take home pay? In my case there is a significant difference due to paying my share of life/health/longterm care ins, and contributing to my flexible spending and retirement accounts. Thanks for clarifying.

Michelle Singletary: I mean after taxes only! If you tithe, it would be taxes and tithe.

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How much House?: When my husband and I purchased our house, we based our payment on what one of us made rather than on what both of us made. This was probably one of the best decisions we have made. As we had kids, and job/career changes, we knew that we wouldn't "lose the house"!

The second thing we did was to both take out enough life insurance to cover the mortgage. If something unimaginable does happen, again, the money is there to keep us in the house.

Michelle Singletary: Great plan. Although I know in many areas, many people don't feel they could do this and ever own a home.

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Mike, Mass.: Michelle:

Big fan, first-time caller, long-time reader!

How can we get the US government to add personal finance education as a prerequisite for high school graduation? It sure would make math class more interesting, pertinent and would be a life skill that is relevant. This is so necessary as we've become more of an "ownership" society (you're on your own..) in student loans over free grant money and pensions that are increasingly defined contributions over defined benefit. The trend is clear, with health care costs so high this will be next on the agenda, and Americans are required to do it on their own and are unprepared to a ridiculous extent, as I see this every day working for a financial institution.

Michelle Singletary: You are half right. I think every high school senior and college senior should have to take a personal finance class before they can graduate.

But I also believe this stuff has to be taught at home.

So it's a two prong approach.

And if we want it in the schools we will have to push our representatives in state legislatures and in Congress.

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Heading to Debt Free: Hi Michelle,

I wrote a few weeks ago for advice on using my tax refund as well as dipping into savings to pay off my highest rate student loan. I paid it off yesterday and wanted to thank you for your support. It's a great feeling, and I'm looking forward to getting rid of the others asap!

Michelle Singletary: Oh how nice. Good for you! Keep going.

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Maryland: For the car woman:

My formula has always been that you keep the car until the repairs are more than the blue book value. So far I've been able to keep 2 cars for 7-8 years each this way, with them paid off for about half.

Run the car into the ground. Why worry about what the repairs MIGHT be until they actually happen?

Michelle Singletary: You got that right!

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Chevy Chase: Hi Michelle!

I've been following along this afternoon, crunching some numbers of my own. Like an earlier chatter, we are trying to decide if we are ready to buy.

How do you guesstimate yearly taxes and insurance that would be added to your principal and interest on a monthly payment.

Thanks!

Michelle Singletary: You could ask a realtor who has sold homes in the areas where you are looking.

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Arlington, Va.: Crash diets, as any doctor will tell you, FAIL.

You cannot ask someone to never plan for a vacation, a new outfit, or a dinner out for the five to ten to twenty years it might take to pay off law school loans (which run into six figures).

She asked a reasonable question. Please give her a reasonable answer.

Michelle Singletary: Well, when you want to do my job apply to the Post.

In my experience I believe she or he MUST continue to live on less until those loans are paid off.

And yes I can and have asked plenty of people to forget about vacations and eating out and whatever when they have six-figure consumer debt like student loans. It if takes years well so be it.

You are not entitled to vacations, new outfits, dinner or whatever if you have massive consumer debt. Just like I'm not entitled to that fried chicken as much as I want it.

Perhaps I shouldn't have repeated the crash diet term but the intent is still right. Good eating is good for your health.

Living below your means and getting rid of debt is good for your financial health and well being.

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Portland, Ore.: Hi Michelle,

I love your books and debt free mindset! I am getting married soon to a wonderful man. I make 105K, have 110K in a money market, have maxed out retirement and Roth contributions, mid 700's credit rating and am debt free except for a 300k mortgage. He's a teacher, makes 55K, has some savings, maxes his retirement, and by the time we marry, will be debt free except for student loans. He owes 90K (8% consolidated) in student loans and has a so-so credit rating since he defaulted on the loans in the past. Should I refinance the house and use the money to pay off/down his students loans? If so, should I do it before we marry while my credit rating is high? Take some money from the money market? Should we just keep paying his loans off? We want a solution that is best for us as a couple, not a his n hers approach. Thanks so much for your help!

Michelle Singletary: Wait until you get married. Then sit down and figure out what is best to retire the debt. I would use the money market if an only if it isn't all the money you have saved for emergencies.

So figure out what you need for six months living expenses. If it is less than the $110,000 take the difference and apply it to the student loans.

Then do what you can --cut expenses, get a third job- and pay off the rest of the student loan debt.

Don't borrow from the home's equity. That's just using more borrowed money to pay off borrowed money. Not a good plan.

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Alexandria, Va.: Michelle,

It's commencement season, so I hope this applies to a lot of people. My niece is about to graduate from college. She is going to start a new job in a new area. She needs a whole new wardrobe, and she's living in a town without public transportation so she needs a car, and of course she's going to have to put down security deposits on her apartment and buy furniture. She knows she needs to live within her means, but she really needs these up-front expenditures. She'll have graduation gifts to help, but they can't cover it all. A friend of hers says that the new wardrobe and car are "investments." I advised her that if she really needs to buy these things with plastic, she could do it, but she needs to set up a budget and a plan for paying it off -- X for the car, Y for the clothes, Z for the apartment, and have the clothes and furniture paid off within a year (i.e. faster than the credit card minimum). Then I took her shoe shopping. (I would NOT do this for my wife.)

Would you give her that advice, or something different? Thanks.

Michelle Singletary: You would be a great uncle if you tell her not to buy anything on credit she can't pay off the next month.

And you would be a great uncle if you told her not to buy anything on credit unless she can pay of off next month AND has at least three months of living expenses saved up.

She can sleep on an bunch of blankets until she can afford furniture (and not on credit). I did.

You would be a great uncle if you told her she doesn't need to "invest" in a wardrobe she can't afford. Mix and match..tell her to try it.

And you would be a great uncle if you sat down with her and helped her create a budget.

And you would be a great uncle if you asked anyone in the family if they had a used car she could have. Ask if anyone has old furniture they aren't using. Drive her around to second-hand stores in her new town. Put the word out to all the relatives that you are starting a fund to help her with the basics she needs so that folks don't buy her grad gifts that she doesn't need.

Teach her the merits of waiting. Teach her the difference between a need and a want.

That's what I would do.

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Md.:"they will allow me to enroll in their "Equity Acceleration Program" for $350 and a $15 service charge per month and will withdraw 2 payments a month. Is this legal? It doesn't seem ethical at least. "

As a former bank examiner: Yes, it is legal. Yes it is stupid from the consumer's point of view. Yes Michelle is 100% right - just pay extra each month towards principal. Next time time you get a loan, look for lenders who offer FREE bi-monthly payments if that is something you want. Many do.

Michelle Singletary: Wonderful advice.

And was there any doubt I was right :)

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Anonymous: I had some late payments to a loan that I later paid off in full. How long will those late payments haunt me?

Michelle Singletary: Negative information stays on your credit report for 7 years. But the impact on your score goes down month after month, year after year.

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Michelle Singletary: I looked up and realized it was 1:20. Wow. There are still so many questions left. So sorry if I didn't get to yours.

But keep an eye out for my print column and e-letter (please sign up) and your question may be answered there.

Thanks again for joining me. And to all the mothers and grandmothers out there, Happy Mother's Day.

Take care.

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