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Michelle Singletary
Washington Post Columnist
Thursday, May 22, 2008; 12:00 PM

Personal finance columnist Michelle Singletary hosted an online discussion with James Lardner, Jose Garcia and Cynthia Zeldin, authors of "Up to Our Eyeballs: How Shady Lenders and Failed Economic Policies Are Drowning Americans in Debt" (New Press and Demos), on Thursday, May 22 at Noon ET.

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In her column from May 4, Michelle wrote: "This well-researched book provides a historical perspective on how we got into our current financial jam. And I say 'we' because all of us are feeling the ramifications of a heavily leveraged population."

A transcript follows.

Read Michelle's past Color of Money columns.

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NW, DC: After allowing us in all this debt, it seems that the banks are just bailing on the public. I do not have A-1 credit, but one credit card account was closed entirely over a disputed balance (additional interest after full payoff). It apprently showed up as late on my creidt report and my other card froze my credit limit to my existing balance. Are you hearing other cases like this?

James Lardner: One thing to watch out for is a practice called "universal default" where if you run afoul of one credit card company, the others jack up your interest rate. In both the House and Senate, there are proposals for lending industry reform that would end this practice.

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Michelle Singletary: Good afternoon all. Well what timing for this chat right?

We are ALL up to our eyeballs in rising gas prices. Then there's food. Add on debt and so, so many people are in trouble.

Anyway, let's get started.

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Mount Pleasant, S.C.: What about the effect that marketing and consumer culture have on a middle class person's savings rate? When I look through a decorating magazine, they always put these incredibly extravagant kitchens, for example, that are way, way out of reality for 90% of Americans (without their taking on significant debt). Our culture seems to make something "normal" when in fact it would be financially harmful to the vast majority of us.

Jose Garcia: The consumer culture is a huge part of modern life in the US. The discrepancy lies in the fact that income has been stagnant for the past couple decades while the cost of living has increased. Safety nets such as health care have been steadily eroding leaving families with less to get by on and often requiring them to lean on credit card debt to make ends meet.

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Reston, Va.: Can you recommend a good personal finance book for a new high school graduate who will be heading out of town for college in the fall? I sometimes think I made it through college without extreme debt purely by luck and I would like to give my nephew a little more information than I had.

Thanks!

Cindy Zeldin: I would suggest All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren and Amelia Warren Tyagi.

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Reston, Va.: If you have $5,000.00 in a money market account and $9,000.00 in credit card debt, should you suspend saving until you've paid off the debt?

Jose Garcia: When dealing with credit cards, the problem is the high APRs that many carry. If your APR is higher than the return you are getting on your money market account (which is usually the case), then it may be prudent to pay off your debt first.

Michelle Singletary: If I had $9,000 in debt and $5,000 in savings (which is what a money market is really) I would do the following:

-- Keep some of that $5,000 for an emergency. If you take it all out and pay down the debt what happens if an unplanned expense comes up? You get back into debt. So hold back some of that money. Perhaps half.

-- Take the other half and pay off that debt.

-- Then get on a debt reduction plan. If that $9,000 is on a number of cards start paying off the one with the lowest BALANCE. Yes, I said balance. While the interest rate is important often people need a psychologial push to get out of debt. If you start with the card with the highest interest rate and often a high balance you don't see much progress and then you give up.

-- If all the debt is on one card, it's time to get into serious cost cutting mode. Consider cutting back on everything -- cell, cable, trips around town and thus gas, clothes, eating out.

-- Then consider if you can increase your income to take care of the debt. Sell stuff, get a part-time job, etc.

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Southern Maryland: Even though we are financially OK with little debt, e.g., house and car, I feel the stress of not being able to help others more. Rising costs for gasoline has eaten so much of our disposable income. When disasters strike and organizations, like CARE and HOPE send requests for money, I can't send the $200 check I use to send because the gas/food increases has reduced it down to $100.

Home repairs and renovations will be reduced since we will not take on debt for home improvements.

Before I graduated from college, credit cards were not available to unemployed or minimally employed college students. But a few years later, my younger sibling mentioned how credit card applications were all over campus. I was shocked since I had just "worked" my way up to a VISA as a full-time employee with a $500 limit. This was the begining of the crisis we face today.

James Lardner: One theme of our book is that people tend to see debt simply as a personal issue. We think of it as a society-wide problem that calls for society-wide solutions (and personal ones too, of course).

There are proposals for lending industry reform moving forward in Congress. You can find out about some of this activity, and how to support it, at the Americans for Fairness in Lending website: www.affil.org.

AFFIL is an umbrella group of organizations working for common sense reform of the lending industry.

Michelle Singletary: You know, good for you for still sending even that $100. I just didn't want that to go by without a comment.

It's tough and even those of us handling our money well are feeling the pain.

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Rockville, Md.: This may be a luxury that not everyone can have, but I recommend a credit card from a credit union - they look out for the customer. Perhaps a bank that wants your business would do as well, but I don't know about that. Never any of these "giants" that take advantage at every opportunity and then some.

James Lardner: It may be an option for a great many people. I was surprised to learn that most credit unions will accept almost anyone as a member. Unfortunately, they don't advertise themselves the way the bigger financial institutions do.

Michelle Singletary: I love credit unions. Been a member since I was just a teen.

And got all my car loans (when I had them) from my credit union.

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Arlington, Va.: What should one be saving? Here's my list:

-- Maximum contributions to 401(k)s, TSP and other employer withholding plans.

-- Maximum contibutions to a Roth IRA or IRA.

-- Three months emergency cash fund.

-- For kids, maximum contributions to a education IRA, and contributions to 529's.

What else should people do?

-- Pay down debts.

-- Pay credit cards off each statement period.

-- Don't lease cars. Buy them and use them until they die.

-- Make a budget and stick to it.

What have I missed?

Michelle Singletary: You are RIGHT ON THE MONEY. You haven't missed much. Maybe add giving to others.

Anyway, are you trying to take my job?

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Philadelphia, Penn.: I have not read your book. I understand the problems with shady lenders and even honest lenders who did not realize the long-term consequences of making loans to people who would be unable to afford the repayments should the economy turn sour, as it has. What economic policies have led to increased private debt, and how much worse has the large increase in the public debt made the situation?

Jose Garcia: In terms of private debt, the rise can be traced to the deregulation of the lending industry. Deregulation allowed lenders to market lending products that, while making companies billions in profits, were not necessarily beneficial to consumers. For example, the credit card industry - thanks to two landmark Supreme Court decisions - allowed banks to charge the interest rates permissible in their home state and that limits on those interests rates would be determined by that home state. Banks quickly moved to states with FAVORABLE regulations. These rulings allowed lenders to charge late payments with an interest rate that can go as high as 29 percent and average $39.00.

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Washington, D.C.: Your advice to Reston is a little off.

"Keep some of that $5,000 for an emergency. If you take it all out and pay down the debt what happens if an unplanned for expense comes up? You get back into debt."

But if you leave the money in the money market, you are already "back into debt" and getting deeper as the interest rate on the debt is higher than the bank is paying.

Pull it all out and pay down the debt. Start a debt reduction plan. If an emergency doesn't happen, you are just fine. If an emergency does happen, you increase your debt BUT you are better off since you haven't been paying interest on the debt you held "in case you had an emergency".

Michelle Singletary: And this is why I'm the one doing this chat, the column, the eletter, writing books.

You are WRONG, WRONG, WRONG.

You need a rainy day fund because there is ALWAYS rain.

You should save while you are paying down debt. You need to hold back savings because things happen.

Cars break down. Kids get sick. You get sick.

You do not want to add to the debt while you are trying to get out. Not having savings is like being in a hole six-feet under and you are trying to dig yourself out. You only sink.

I've been doing this for a very long time and I've helped many, many people get out of debt.

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Maryland: I am interested in purchasing a home in two more years, however, since this is a good time to buy since many homes are being foreclosed...my question is what or how can the economy be forecasted based on the woes it currently is in?

James Lardner: Predicting isn't necessarily any easier after a bubble bursts than before, but here goes...

Nationally, home prices are down about 15% from their high in July 2005. Of course, the story varies across the country. Robert Shiller thinks average home prices will come down another 15% - which would produce a drop comparable to what we had in the Great Depression. Others estimate 20 to 25 percent. Either way, you probably don't have to worry that prices will go up in the next two years. You can wait calmly.

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re: "After allowing us in all this debt": The only way to solve a problem is to admit it, and NO, the bank didn't allow you to go into debt, YOU chose and allowed yourself. YOU had 100% control over that debt and you'll never be free of it until you admit it's all in YOUR hands.

James Lardner: We're talking about social responsibility v. personal responsibility. But maybe it's not either/or. If you want people to make good decisions, the choices need to be reasonably clear. In the lending world - credit cards, mortgages etc - the choices are baffling. The lending industry has made them so. That's why we think more regulation is required.

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Jessup, Md.: HELP ME! I just can't seem to save any money. I try, but something keeps coming up. Just this week, my alternator went out on my 1993 Lexus (with 250k miles). I had to use the money I was trying to save to try to get that fixed. I make very good money (over 100k), single, no kids, apt, educated, but I just seem to be sinking in a hole financially. I have unsecured debt out the ying yang..(canceled all the cc's, credit score is probably 100 or lower)and I'm robbing Peter to pay Paul. I really feel like giving up! Throw me a lifeline ...anybody!!!!

Michelle Singletary: And what was that person saying about an emergency not coming up so don't save when you are in debt?

See. Wrong. So WRONG.

Well Jessup, here's your lifeline. Stop doing what you are doing. Change. I bet you don't have a budget. I bet you don't save something from your paycheck every time you get paid.

I bet you are still overspending.

So STOP.

When this chat is over march your behind up to your benefits office and have some money directly deposited into a savings account (that you do not have an ATM to). If you don't have one separate from your checking, set one up. Join a credit union and have the money put in that account.

That's a start.

Then get a budget. You will find a template for one on my Page on the Post site.

Then list ALL your debts starting with the one with the lowest balance. Then begin to knock them off one by one.

If you have to, get a roommate. But you do have it in your power with your earnings to dig yourself out of this mess.

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Laurel, Md.: I think I need some help prioritizing. I have about $1,200 in credit card debt that I hope to pay off by April 2009, if not sooner. Starting in December, I will begin paying student loans ($16,000). I have no savings. Should I start saving? Or just use all the money to pay down debt? Should I start saving once the c.c. debt is paid off? Or keep using any extra money to pay the student loan?

James Lardner: Paying off the credit card debt first sounds like a good idea, because it's high-interest debt, and there are hidden tricks and traps in most credit card contracts that can make it even more expensive than it seems.

The student loan question depends partly on what type of student loan you're dealing with.

Michelle Singletary: See some of my previous answers. You HAVE to save and pay down the debt. List all your debts (even the student loans) from smallest balance to highest. Then just begin to go down the list paying them off one by one while making the minimum payment on the ones you are throwing massive amounts of money on.

And while you are doing this, cut to the bone. I mean cut until it hurts. Cut back on every expense you can. If you have a cell phone bill that is more than $30 or $40 a month and you have all this debt, you are crazy. No texting. No internet on the phone. Stop chatting away your money. Cut back to basic cable (if not cutting it out altogether).

Get a roommate. Get a second job. And keep in mind this is only for a season until you get clear of this burden.

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James, Arlington, Va.: Many of us called this problem years ago. You cannot have an economy based on flipping houses and real estate rising.

Now, we are feeling the effects of it and we will not be out of the woods anytime soon. I have a great amount of savings put away and enough for a 6 figure down payment but there is no way I will pay the prices for these homes in the Arlington area, especially condos.

These sellers need to realize that in 2001, condos in the area were around $125,000 for a 1BR and now they are trying to sell them for $350,000 and more. Are you kidding me? With taxes and condo fees (which are even more of a joke...$250 for a 1 BR, $500 for a 2BR per month) which no one in their right mind would pay along with the prices, we have a seller society that is detached from reality and what their condos and homes are worth.

It really rubs me the wrong way because someone fiscally responsible like myself got screwed by a bunch of flippers and speculators and now I have to pay the price by not being able to buy due to absurd appreciation and now we are paying the price in inflation.

Jose Garcia: While I have no knowledge about the specifics of Arlington area, the appreciation of real estate, in general, may have been affected by speculators but a huge contributing factor was the push of subprime mortage products into the market. Often, consumers with prime credit were pushed into taking out subprime loans. The market was flooded with questionable mortgages which helped to decrease the vacancy rate and created the perfect storm for quickly appreciating properties. As many consumer organizations have been saying for years, these products would have devastating effects on not only consumers, but the market.

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Baltimore, Md.: Hi, Michelle,

I've had a VISA card for about 6 years now, and they have recently doubled my interest rate. How badly would this affect my credit score if I pay off the balance and close the account? If I keep the account open and don't use it I may be hit with a "Non-Activity" penalty.

Cindy Zeldin: As a first step, I would recommend calling your credit card company and asking them to lower your interest rate. Particularly since it sounds as if you are able to pay off the balance in full, you have some real leverage in that phone call and they may well be willing to lower the rate. If not, pay off the card. The financial burden of paying those high interest rates would outweigh any minimal effects on your credit score from closing the account.

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Washington, D.C.: What are the first steps for climbing out of debt? A family member has tens of thousands of dollars in credit card debt and is having trouble making the payments, even thinking of declaring bankruptcy. We may have to help financially (a minefield of its own) but would like to start out by being able to give helpful advice.

James Lardner: One crucial point is not to fall into the hands of the sham debt counselors, who are in it for a profit. Americans for Fairness in Lending (affil.org) is a good place to go for leads to trustworthy debt counseling.

Michelle Singletary: You might also suggest they go to www.debtadvice.org. They type in their area code and can find a credit counseling agency near them.

And I would strongly caution you against bailing this family member out. Here's why. Often the pain of having to dig yourself out of debt imprints a powerful memory and will (or should) keep that person from getting back into this type of debt. If you bail them out, you rob them of the chance to accomplish this on their own. Be supportive, but unless they are facing living on the street (and for some that is what they need), stand by with good advice.

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Rockville: I haven't read your book, but in your opinion where does personal responsibility fit into your thesis?

James Lardner: I like this question. Between the everyone-for-him-or-herself ideology of today's America and all the financial self-help literature, it's easy to think purely in terms of individual responsibility. But individual responsibility becomes very difficult to exercise when you're dealing with ridiculously complicated products. Try to understand the terms of a subprime mortgage or a typical credit card by reading the contract, and you'll see what I mean.

Common sense regulation makes it EASIER for people to exercise personal responsibility.

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Fairport, New York: I have bought the book based on Ms. Singletary's column, but have not gotten too far. How much does your book talk about "Personal Responsibility" for debt?

People have the choice to spend or save. In the beginning of your book you note people are spending money they don't have, on things they don't need. People have choices, but if they don't like the outcome, why is the "cause" of the problem the lenders, government, and everyone else except the borrower?

Mark

Cindy Zeldin: Hi Mark,

We recognize the importance of personal responsibility; however, when we wrote this book, we chose to focus on the broader context in which individual spending and saving decisions are made. You may want to take a look at our final chapter on policy recommendations. In it, we highlight programs that encourage saving, such as the America Saves program managed by the Consumer Federation of America, as well as regulatory and legislative changes that can make lending more fair and transparent for everyone.

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Rockville, Md.: What is this "cash for my car title" ad about? Does someone really say "I don't have enough money, so I need to have more payments?" Or do they really not care if someone takes their car?

Michelle Singletary: What you are watching is payday lending at its worst.

How crazy is it to put up your car for a short-term loan? So many people get trapped into this type of loan and end up losing their car, which they often need to keep their job.

And I HATE those commericals...people waving cash to go on a trip or have fun.

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Falls Church, Va.: Arlington's list of ways that people should be saving money is nice, for those who can. A lot of us can NOT afford to contribute the max to our 401(k), have a separate IRA, maintain a liquid savings account for emergencies, and pay our monthly living expenses, let alone be paying down any debt.

It's frustrating to be constantly made to feel there must be something wrong with us if we have to actually spend some of the money we earn.

Michelle Singletary: Here comes the chip again.

Look, this chat, my columns, my advice has ranged from helping people barely making it to people who have enough money left over to give generously to charity.

NOBODY can make you FEEL ANYTHING. You CHOOSE to feel the guilt. And often because you know you are doing wrong.

If you are working at a low-wage job, do your best to provide a safety net for yourself. If you can't contribute the max to a retirement fund, contribute something, anything. Be it $5 or $50. Save something. Anything. Be it $5 or $50 per paycheck.

I know it can be done because I was raised by a woman who did it. She made next to nothing as a nurse's aide. Had a drunk husband who often didn't bring home his paycheck. But she saved. She raised five grandchildren without taking government money. She paid for her home. she paid off her cars --EARLY. She put food on the table. Sometimes is was neckbones, but it was food.

Big Mama did it and you can too.

So I know poverty. I know hunger. But what would you suggest I offer as an alternative to those just making it?

Die?

If you are just getting by then you can't live in an apartment by yourself. You have to get a roommate. Or live with relatives or move to an area with more affordable housing.

You can't get a cell phone or premium cable. You have to buy a used car. You can't go on vacations.

But you can live. You may have to do whatever it takes to get more education, even if it means taking one class at a time or availing yourself of community educational programs.

But in the end the advice -- my advice -- is the same whether you are making $20,000 or $200,000. You have to live on less than you make. You can't use credit as an extension of your income. You have to have a budget. You can't spend more than you make.

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Washington, D.C.: Hi Michelle,

I need some advice on how to convince my parents to save more. They are both blue collar workers so it's not that they are making huge salaries and ignoring the need to save. Nevertheless, I think they could save a little if they needed to. They are in their late 50's and my dad has a 401K and some stock, but little in terms of $$ in a bank account in case something happens. Any advice?

Jose Garcia: Savings is critical for older Americans. It is also important that they are aware of the pitfalls of turning to credit. In the last decade, we have seen an increase in the marketing of credit cards to Older Americans. As a result, credit card debt has increased among this age group. Between 1989 and 2004, credit card debt for Older Americans increased by 194 percent. One contributing factor has been out or pocket medical expenses. These issues are important for your parents because as they become older their ability to save will decrease.

Michelle Singletary: In a non-confrontational and loving way, just continue to talk to your parents. Give them books. Show then my articles or anybody's articles. Take them to seminars (good ones not scams).

Just keep the lines of communication open. But in the end you can't make them do anything. But perhaps if you just keep pushing and talking, they will do more.

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Housing crisis: Part of the problem with the housing "crisis" is that so many people assume that housing prices ALWAYS go up. Yes, in general, home prices go up. But it is like the stock market. Yes, in general, it goes up, but individual stocks, like individual houses, go UP and DOWN. Someone who buys a house for $250K and expects to sell it a year later for $300K may succeed (if he bought a "Microsoft") or not (if he bought a "American Airlines"). Your house shouldn't be an investment first and a home second.

James Lardner: I absolutely agree. Americans got into the habit of thinking of a home as a kind of ATM machine. Maybe when the dust clears, a home will be a home again.

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San Francisco, Calif.: Hi Michelle,

Any idea when those rebate checks should be coming through? Are they phasing it in east to west/west to east?

Thanks!

Michelle Singletary: The IRS published a schedule.

Go to www.irs.gov and you can find it.

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D.C.: Michelle, thank you for your advice on buying a used wedding dress! I went to a sale and bought a wonderful dress for only $250 and guess what? My sale benefited Brides Against Breast Cancer, so a terminal breast cancer patient will now have a wish fulfilled. I am so happy!!

Michelle Singletary: Good for you. As many of you may know, I did the same.

I figured the person who wore it wasn't going to be at MY wedding.

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Arlington, Va.: My husband and I bought a condo in Arlington in Spring 2007. The price of the condo was down about 8% from 2005 rates, so we felt we were getting a good deal. Now with housing prices dropping our condo is valued about 8% less than when we bought it. My husband and I are more than able to pay our mortgage and are not at risk for foreclosure, but I am worried that we will not get the money back out of the condo when we go to sell in 3 or 4 years. What will happen if at that time the condo is still worth less than our 2007 mortgage? We will never be able to afford another place without getting at least our down payment back.

James Lardner: This is a tough one. But I'd say you're fortunate if you have a straightforward affordable mortgage, and you probably shouldn't make apocalyptic assumptions about where the housing market will be in 3/4 years. Live on!

Michelle Singletary: And save. If you begin saving now you will have your down payment without relying on the sale of your condo. Then you might be able to keep it and rent it until prices return or you can at least break even.

But if you HAVE to sell, you will have to bring money to the table. So either way, you have to get saving.

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Omaha, Neb.: My boyfriend is very fiscally responsible (pays everything on time, automatically contributes to retirement savings, etc.) However, he pays for all of his living expenses on his credit card: utilities, groceries, gas, clothes, etc. He pays the bill off fully every month and thinks this is a great idea, because of the rewards programs and the "extra time" you have before you actually pay for items. I think this is a really bad system but he is very analytical and "it just seems like a bad idea" isn't a sufficient argument in his mind. How would you explain why his day-to-day reliance on credit is a bad approach?

James Lardner: I suggest going over a year or two of those credit card statements and adding up any late fees or other fees that crept in there. THAT's where the credit card companies make a lot of revenue, not in the advertised interest rate. They count on cardholders to make mistakes. Most of us oblige.

Michelle Singletary: Or try this with your boyfriend.

Have him take my credit card challenge. Ask him to prove his point that he doesn't buy MORE with plastic by spending a month without using his credit card.

Then have him compare it with previous months of spending.

When I have others do this, almost all the time they realize that they do buy more when they use credit.

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Reston, Va.: In trying to help friends, I have one that is frequently in financial trouble. I've told them that I have only a limited ability to help them, but for me to do so again, I need a full business plan, outlining what they'll do with the money, how they'll pay me back, and how they'll keep from getting in trouble again.

Any other suggestions? I hate to see a friend possibly lose their house, but I also can't keep being the one to help out.

James Lardner: Well, if losing a house is what's at stake, there may be a real change to negotiate with the lender or loan servicer. Foreclosure is a very bad deal for them - it often means something like a 50 percent loss. The FHA is about to get into the business of issuing refinancing loans for many homeowners - at a reduced level of principal. This may already be possible, even before Congress passes its rescue plan.

But a lot of homeowners don't lift a finger until the foreclosure process is already well underway.

Michelle Singletary: Honestly, it may be time to let your friend fall. If you keep bailing them out then they have no reason to change.

You may actually be standing in the way of them making a change to how they handle their finances because they can rely on you as a Plan B.

So stop being their Plan B. Give them love but stop the financial support.

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Texas: I recently went back to work and now our joint income is over $100k (about 140). We have two kids in daycare, a mortgage, and debt from when my husband was unemployed for about three months. I feel blessed that we have a relatively comfortable life, but we still have a strict budget to pay off our debt, build an emergency savings and save for the future including our kids college. I see friends/family in roughly our same income bracket or even a little less and am amazed at their lifestyle. I mean back in the day 100K would probably mean you're really wealthy, but I don't think so anymore with the inflation. But I think some people haven't realized this..perhaps they think they should have a more lavish lifestyle because of their income and are using credit to achieve that?

Jose Garcia: The sad fact is that people are not using credit to live lavish lifestyles but many are using it to maintain their standard of living. For many families it is groceries, utilities etc. You are right. What seemed like a lot 20 years ago may not be so much now. Previous generations had subsidized higher education and income grew with productivity. Nowadays people graduate with $20,000, on average, in debt and earn wages that have not kept up with increased productivity.

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SubPrime, Crazy Loans, etc: In 2005, my spouse and I bought our first home. Needed a pre-qual letter, of course. Because my husband's job was new (like 2 weeks new), I just submitted my salary. Now, I have good credit, but I qualified for a $250,000 LOAN (not house, loan!) when I was making $40,000/year. My real estate agent then began pushing me into a more and more expensive home "because you can afford it". Umm, no. We ended up with a $150,000 loan (30 year fixed, of course) and the day the first payment was due, my spouse lost his job and didn't find another for a year. It was tough, but I'm glad we didn't fall for the pressure of "you can afford it"!

Jose Garcia: You are not alone. Many were trapped by the "you can afford it" speech. Hopefully, legislators will help to bail out consumers to the degree that they helped to bail out lenders.

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Arlington, Va.: I haven't read the book. What kind of regulations are you proposing?

For example, are we talking about expanding the "Schumer box" disclosure for credit cards and providing a similar form for mortgages?

Or Warren's suggested Financial Product Safety Commission?

Or actual fiat power that disallows certain market transactions?

James Lardner: The Schumer box is an example of a disclosure rule. In recent decades, as other forms of regulation have fallen away, disclosure has assumed more of the burden of protecting borrowers from abusive loans. Unfortunately, as disclosure has become more crucial, it has become less meaningful.

The complexity of today's loans and legal requirements has turned the disclosure process into an information dump. Crucial loan terms are buried in the fine print of hugely long contracts. We need EFFECTIVE disclosure, such as the one-page "basic facts about your mortgage" form proposed by Alex Pollock of the American Enterprise Institute.

His form focuses on essential information, and links it to the borrower's financial circumstances. It explains what you'll pay up front in "total 'points' plus estimated other costs and fees," tells you what your monthly payment will be - now, later, and with taxes and insurance included; and lays out the expenses both in absolute dollars and as a fraction of income.

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Boston, Mass.: What recommendations do you have for changes that Congress ought to make - to help folks out of this debt hole?

James Lardner: Here are a couple of ideas from "Up to Our Eyeballs":

#1: A higher education policy that doesn't depend mostly on debt (and increasingly on private unregulated debt). We were on the way to having such a policy with the GI Bill and the Higher Education Act and Pell grants in the 1960s and '70s.

#2: Credit card reform legislation to ban unfair practices like "universal default" and retroactive penalty pricing.

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I figured the person who wore it wasn't going to be at MY wedding: lol!

Michelle Singletary: I'm glad I made you laugh. These days we all need a good laugh.

I also didn't rent a car or limo or chariot or horse and buggy, etc.

My cousin drove me to the wedding and then to the reception.

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Rochester, NY: Your answer to Jessup is right on the money. The first thing you do is pay yourself when the paycheck comes in via automatic deposit in an account that will not be touched until some distant time in the future. I was lucky enough to have done this when I was first employed over 30 years ago. The current balance is truly awesome. The account has not been touched since inception. The trick is to pattern your lifestyle not according to what you earn but rather to what you have left once you paid yourself.

Michelle Singletary: My grandmother, Big Mama, taught me that.

She did it even with the challenges she had. And here's another trick. If you have a car loan, when you finish paying off the car, keep making loan payments only to yourself. Do this for several years and you will have the money --perhaps even all of it -- to pay cash for the next car you NEED. Big Mama taught that to me too.

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Alexandria, Va.: Michelle,

I love your advice and columns, and I've finally come to the realization that I need to have a budget. But I can't find the link on your page! Thanks for your input on all things financial!

washingtonpost.com: Budget Worksheet (pdf)

Michelle Singletary: Here you go.

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Harrisburg, Penn.: We have had fairly good credit but were out of the country for a year and a half and we could not make payments for a couple of utility bills that came in later that did not amount to too much, after we left. That screwed up our credit record and now we have a real big problem. We could not find a way to pay them too because we had canceled our cards before we left and somehow it got all messed up. I think credit card companies should consider situations like this... because in the first place they lend out so much money to people who do not qualify for that much money and expect them to pay it back.

Jose Garcia: Companies are allowed to change the terms at any time for any reason. In today's financial crisis, we have seen a decrease in credit limits which has more consumers close to maxing out without them even knowing it. This triggers additional fees that increase their debt. However, there may be light at the end of the tunnel as the Federal Reserve Board is looking into regulating the credit card industry.

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Rockville, Maryland: Condo worth less? Keep it. Right now the only loss is paper. Why make it real? Prices can go up and individual buyers do pay more. Right now you have a place to live and rent does go up - so your payments are stable. That is a plus.

Michelle Singletary: Good point. Thanks.

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That is it!: I don't know if I've ever read it more accurately and succinctly than "you have to spend less than you make." That is it!

And I think that is why you are getting comments about the "personal responsibility" aspect of the debt crisis. Those of us who have been doing that all along really don't want to bail out those who were going on over priced vacations, driving new import cars every two years, and over bought on their houses. I always joked with a friend of mine about the "cash poor" we saw among us and how bad it would be if the economy got tight. It has and it is. And I don't want to help them. Surely you can understand that?

We need some sort of moral means testing. Which is probably impossible. So I guess we end up bailing out some of the irresponsible with the ones who truly need and deserve help.

Sigh...

James Lardner: Financial irresponsibility may help explain individual stories. It surely does not explain why this country faces a foreclosure epidemic today that did not exist five years ago. Human nature did not change. What changed was the nature of the lending industry.

Most homeowners have fixed-rate mortgages. That is partly because of government regulation, which made the fixed-rate mortgage standard, until the subprime lenders came along.

Edward M. Gramlich, who died a few months ago, was a member of the Federal Reserve Board back in 2000. Gramlich went to see Alan Greenspan to plead for a close examination of the subprime mortgage market. Lenders were directing "the most risky loan products" to "the least sophisticated borrowers," Gramlich pointed out. There was no good reason for that. It was a scam.

The Fed and other government agencies could have put a stop to it, simply by enforcing existing laws. But they didn't.

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washingtonpost.com:

Credit Cards Cost, No Matter What
Your Losing Hand

Michelle Singletary: This is for the girlfriend that wants to make the point that her honey may be spending more when he uses plastic. So print these columns out and show them to him.

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Alex., Va.: To the person from Jessup: if you are making $100K, and live in an apartment and drive a 15 year old car - what are you spending all that money on?

Michelle Singletary: Good point. Inquiring minds want to know.

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Nonactivity penalty?: What kind of penalty is that? You can't be charged for NOT using the card.

Michelle Singletary: Oh, but you can!

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Money saving suggestion: Hi Michelle, I read your discussions and thought I would post two money saving tips that I do that add up.

1. When I go to a store and at the bottom of the receipt it says, You saved $X amt, I take that cash out of my wallet and put it in a box.

2. I also take any silver change out of my wallet at the end of the day and put it in a jar.

Its amazing how these two little things just add up. When I filled up my glass jar, which was a large beer stein, it had $160 in it. At the end of the year, when I add the money I put in from my "savings" from stores it can be over $300. This way I can see how much I saved by using a frequent buyer card vs just looking at the totals at the bottom of the receipt. Its much more tangible that way.

Good luck to all us savers!

Michelle Singletary: Tried and true ideas. Thanks.

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Chatham, Ill.: Wow! I liked your response Michelle to the reader with a "chip". You are so right! The truth is we can all live below our means if we want and save/invest the difference to leverage ourselves to a better life in the long-run -- we just have to be willing to defer short-term gratification.

Michelle Singletary: How true. I also know there are many, many people who are not making enough to provide good shelter and food for themselves and their family.

As I said, I know what it's like to be on that rung of the ladder. But I also know that you still have to practice good money management and especially so if you are at the bottom. I watch my grandmother do it. It's hard. Makes you cry sometimes. I certainly did when kids teased me for wearing the same clothes so repeatedly they could guess which outfit I would have on day to day. I didn't go to a movie until I was in my late teens. I didn't see the inside of a restaurant until then either. So I know. And it's why I preach so hard about saving whatever you can. About watching how you use that plastic devil. Because we all can fall financially to that bottom rung.

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Rockville, Md.: Can anyone speak to the fact that many of the homes in foreclosure are no longer worth anything close to what was paid for them? It seems that people in this position are often better off just bailing than trying to fight to keep the home.

James Lardner: In California, there's a company called "You Walk Away" that is actually in business to help homeowners abandon their homes and mortgage debts. For a fee, according to US News & World Report, they will "hold cash-strapped borrowers' hands as they lose their most valuable asset, tarnish their credit, and erode their self-worth."

Owing more than your house is "worth" is called being "underwater." It is a huge problem, and it's the focus of the rescue legislation championed by Chris Dodd in the Senate and Barney Frank in the House. Their proposal - if it passes and if it works - would encourage existing lenders to take a loss, allowing homeowners to start over with a realistic and affordable mortgage. SOME homeowners. It won't work for everyone, and as you say, not everyone will even want to avoid foreclosure.

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Maryland: Simple question, but I haven't found an answer on it yet. I am a 19 y.o. college student. How do I establish credit? Should I get a credit card or is the check card I've had since I was 16 enough? I understand how credit cards work and would just put a little on them and pay them off each month. Thanks for the help!

Cindy Zeldin: It sounds like you're being smart about credit. If your university has a credit union, you may want to look there for a card with a low interest rate and a low limit that you can hold on to just in case of emergencies. Credit unions are a good alternative to the heavily marketed credit cards that the major card companies advertise to college students. If you do get a credit union issued credit card, be sure to read the fine print, don't charge anything you wouldn't pay cash for, and pay it off in full every month. Good luck!

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Washington D.C.: My husband really wants to make a big purchase which we can afford. However, I have told him that he has to first "find" the money - look for cash he's not thinking about. He has since cashed in a big jar of change ($150!) and canceled an online subscription he wasn't really using. And also laid out a plan for future savings (over the next 2 months). All that effort and he managed to "find" the money without affecting our monthly savings plan. Just had to try a little harder.

Michelle Singletary: Love this!

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Washington, D.C.: It still astounds me that people prefer to believe that individuals are solely responsible for the mess they are in. True maybe in some cases, but people whose BUSINESS is money and lending and who have MBAs and specialized knowledge and are supposed be extra-smart about money are the ones who made this money available to the individuals who are now in trouble. Shouldn't the lenders be even more aware of what they are doing?

Michelle Singletary: They should. And you get an Amen!

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10001: For the individual responsibility corner, remember when home prices drop, that includes your home too. When dollars are cheap, that raises you gas price too.

What I got from the book is that we are all financial neophytes compared to the banks, credit card companies, and lenders who do this all day, every day.

These companies also successfully lobbied Congress to have the rules bent in their favor.

My question is, since the Fed used our tax money to bail out Bear Sterns with guarantees, how will this influence corporate behavior? It seems that the actual use of tax dollars to support a non-regulated institution for these financial instruments opens up all sorts of issues.

James Lardner: Yep. Banks have been closely regulated since the 1930s, on the theory that bank failures had wider social repercussions. Investment banks and hedge funds have gone largely unregulated, because supposedly their mistakes weren't so earthshaking. Now it turns out, in the Fed's opinion, that letting Bear-Stearns fail is not an option. If that's true, then investment banks and hedge funds need to be regulated as banks are. In fact, some investment bankers themselves are now asking for regulation.

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Vienna, Va.: Hi Michelle,

Will you be contributing a column to the childhood obesity series? Part of the problem seems to be too many kids/tweens/teens with extra cash. If they don't have money in their pockets, they can't stop at 7-11 on the way home from school. I'd love to see your thoughts on the intersection of money and over-eating. Thanks.

Michelle Singletary: Interesting. I have written that being overweight comes with a cost, but perhaps I should revisit. Thanks.

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Arlington, Va.: Why isn't America saving? I think it's the easy availability of credit combined with rampant financial illiteracy. People drew down on their home equity and credit lines to buy fancy toys, without understanding the consequences.

Credit card companies are also the new loan sharks. Interest rates and fees are atrociously high, and the way interest and fees are calculated is both usurious and deceptive. I have a graduate degree in a mathematically-inclined field, and I can't even decipher how my bank calculates those fees. It's moot to me -- I pay everything off at the end of the month, but it's still ridiculous. Rein in the credit card companies and make the interests and fees transparent and understandable. Require a "for dummies" type of document at every home equity or mortgage closing that clearly states what the loan payments are, for how long, when they'll rise and by how much (estimates and examples even), and what the penalities are, if any, to refinance. There's so much that can be done for consumer protection.

And create a class in middle schools or high schools called, "Managing Credit." In fact, Michelle, why don't you write a book aimed at middle and high schoolers? You have to teach these kids how deal with the sharks out there.

Michelle Singletary: You make some very good points.

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Columbia Md.: Thanks for your emphasis on the importance of savings, Michelle. You are so on target about the importance of getting started. In my case, awhile back, a co-worker asked if I was investing in the federal thrift savings plan. I'd like to, I told him, but I don't have enough money to make a difference. "Just start with $50 every paycheck," he said "and the next time you get a pay raise, increase the amount. The most important thing is to get started". Now, I've got close to $150K, and it all started with that tip and that little start of $50 every 2 weeks.

Michelle Singletary: I hope you took that co-worker to lunch :)

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Alexandria, Va.: Hi Michelle - LOVE your advice, read your columns/chats regularly - I've submitted this the past 3 chats, so trying again....! I'm in a position to be able to pay extra principle to my mortgage. I have an 80/20 5-year ARM/Fixed Home equity. My intent is to apply an extra $500/month so that I am in a position to re-finance before my 5 years are up and be able to avoid paying mortgage insurance. My question is should I pay down the mortgage loan (5.625%) or the home equity loan (8.35%) or both? Where can I get the most "bang for my buck"? Intuition tells me pay down the higher interest loan, but I'm wondering if by paying down the lower interest loan, I am able to pay down more of the principle? Any advice is appreciated!

Michelle Singletary: In this case I would pay down the home equity loan.

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Washington, D.C.: Hi Michelle. Just a simple question so I hope you will take it. Is there a point in having an American Express card? I use it basically as a "debit card" but now I don't think it's worth the reward points or annual fee. I also think I spend more when I use it! Just wanted your opinion because I think I'll just close the account. Thanks.

Michelle Singletary: If you like the security of paying off the AE every month you can keep it. But as you said be very, very mindful that studies show many people do buy more, spend more when using plastic. So everytime you take it, out ask yourself, "Is this a need or a want?"

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Waving Cash!: The other ad I hate with the "waving cash" motif are the ads for Charles Town Racing and Slots (aka Tax on the Mathematically Stupid). I just hate that people allow themselves to be manipulated like that. I was in Reno one time and actually walked through a casino and the people at the slot machines looked dead. They just kept pulling the lever. It was one of the most sad things I have ever seen. I guess that wouldn't make a good ad.

Michelle Singletary: It sure wouldn't.

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Washington, D.C.: Michelle, the 1% savings rate you mentioned in today's column...is that including or excluding retirement savings?

Michelle Singletary: Does not include it.

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Virginia: Dear Michelle,

Your column on savings was very timely for our family. My husband received a raise and we now have almost $900 extra per month (Thank you, God!). His opinion is that we should build up our available savings (I contribute 8% to my 403b, he contributes about 5% to 401k, we have $2500 emergency fund and almost $90K in mutual funds) but I just want to wipe out credit card debt (hovering around $3800). Should we try to do both, or mostly save up? The problem seems to be that in the past we've tried to pay down debt, had no savings because of that, and then had to use the credit card for car repairs, thus driving up debt again.

Thank you for all your wonderful columns!!

washingtonpost.com:

Moral of Downturn Story: Piggies Must Be Fed (Today's Column)

Let's Make It Cool to Save ( Sunday, May 11)

Michelle Singletary: In your case, do both. Take the majority of that extra money and pay off the credit card debt. And also use some to build up your savings. Or if you think the $2,500 is enough, use ALL of that $900 and you will quickly knock out that credit card debt and then put all of the $900 going forward into savings until you reach your goals.

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Everyone: Shouldn't lenders and borrowers both be responsible? It's not one way or the other. Sometimes it is irresponsible lending, but there are definitely irresponsible borrowers/spenders out there. THERE ARE!

Michelle Singletary: No need to shout :) You are right. There's enough blame to go around.

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Michelle Singletary: Folks, I have got to go. You would keep me here all day. But great questions and comments -- even love the jabs. Take care and hope you return next time.

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