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Michelle Singletary
Washington Post Personal Finance Columnist
Thursday, November 6, 2008; 12:00 PM

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

This Story

A transcript follows.

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

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Michelle Singletary: Welcome all. I'm so glad you could join me.

So let's get started.

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Silver Spring, Md.: Hi there, I'm a longtime reader of yours and have become quite adept at building up my savings, but now need some advice. I am paying off $29K in fed grad school loans. Thanks to my federal job, my employer is actually paying the whole minimum payment each month, so what I am doing is paying extra to pay it off faster. Otherwise I have no debt and have about 6 months in living expenses saved up and am contributing 5% (with 5% match) to the federal retirement program.

However, I have a big car repair coming up ($4k) and also want to open a Roth IRA. It is going to be hard to do all 3 things though. Given the lean economic times (and my expenses are already down to the bare necessities), should I stop paying extra to the loans in order to build more savings?

They are Staffords and consolidated with fixed rates (2 loans at 4.8%, 2 at 6.8%).

What do you think?

Michelle Singletary: I think you should pull back on savings, including adding to a Roth, if you know you've got a huge repair bill coming up. You don't want to add to your debt.

When you have saved enough for the repair you can go back to savings.

And a $4,000 repair bill? My goodness, what went wrong?

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Springfield, Va.: Hi Michelle! My husband and I are looking to put some of our savings into CDs. My bank offers ladder CD's. Do you consider this type of CD a good investment option? Thanks!

Michelle Singletary: I think CD laddering is okay if you don't want to put certain funds at risk.

For those who don't know, with CD laddering you buy CDs at one time but with different maturity dates.

So you may start with one year, two year, three year, four year, and five year CDs. As the CDs mature you can roll the money over into new CDs.

Just realize the longer the CD the longer you will tie your money up. So make sure you always have funds that come due in short terms. You also risk locking your money up when rates are low.

For more information about this go to this page at www.bankrate.com

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Dupont Circle: Hey Michelle, Did you see you made it into the Ins and Outs chat yesterday? Pretty fantastic.

Pittsburgh, Pa.: In: Michelle Singletary Out: Anna Wintour

Hank Stuever: In: Michelle Singletary Out: Countrywide, realtors, Santa Claus

washingtonpost.com: Ins and Outs chat with Style's Hank Stuever

Michelle Singletary: Totally cool.

But I'm sure for some I'm always out :)

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Elkton, Md.: Not a question, a suggestion for the economy. I'm not sure who to send this email to, so I'm sending it here. The country needs infrastructure and clean energy. That's what will generate wealth, not tax breaks for rich people and big oil.

We need to upgrade things like aging sewer systems in big, but old, cities. And we especially need to improve both public transportation and roads in big cities to reduce rush hour slowdowns. That will save lots of energy and reduce pollution by preventing cars from idling while traffic is blocked at rush hour bottlenecks. These big construction projects will create jobs as well as saving energy.

The next thing we need is new, clean energy. We can get it from wind and solar projects, but they only work when the wind is blowing and the sun is shining. We need to dramatically increase our use of geothermal energy. That stuff, while not entirely inexhaustible like wind and solar, is nearly inexhaustible and will last for a couple of millenia at least, and it works 24/7/365 except during leap year, when it works 24/7/366.

These inexhaustible sources of energy need capital investment, and will create jobs in construction, and then in maintenance.

Once we have all the clean electricity we can eat, the use of plug-in electric vehicles will truly contribute to energy independence and to salvation from global overheating.

So, my question here is, what do we invest in, or do, in order to contribute to these salutary goals?

Michelle Singletary: I like your ideas. And you invest in companies doing just what you suggest.

And you bug your representatives to promote these ideas for the country.

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Anonymous: Hi Michelle,

I love your chats and could use some advice. I have almost 5K in savings at a 2.75% interest rate and $2,700 left to pay on my car loan at a 4.9% interest rate. Should I just go ahead and pay off the car, since more interest is accruing on it? Or should I keep making large monthly payments, in which case I'd pay off the car in February or March? I have a steady federal job and do not own a home, so I have a hard time seeing what I really need emergency funds for at this point in my life. If it makes a difference, I also have 17K in student loan debt, but that interest (6.5%) is tax deductible.

Michelle Singletary: Interesting, you are worried about paying off $2,700 in car debt at 4.9 percent but not $17,000 in student loan debt at 6.5 percent?

I would use that money to pay down the student loan debt. And frankly I'm never impressed with a tax deduction, which means you have spend money (in this case pay interest) to get back money.

So get rid of the "but" in your vocabulary when it comes to student loan debt and concentrate on that.

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Bay Area, Calif.: Hello! Thanks for these chats and all the good advice. Despite all the doom and gloom about the economy and markets, I haven't felt particularly impacted yet. Do you feel that those of us who have been responsible (i.e. no debt, emergency savings, living within our means) are going to have a tougher time like everyone else over the next few years? Or have I just been very fortunate so far to not feel the squeeze?

Michelle Singletary: You: Fortunate

You: Probably will feel the pinch in terms of higher prices for stuff.

You: Good for you for planning for times like this.

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Boulder, Colo.: Speaking of car repairs, I had to take my car in this week at a cost of $450. How did I pay for it? With my life happens fund, of course. My mechanic couldn't understand why I was smiling as I was paying for it. I was smiling because I paid cash for a very reliable used car 4 years ago that requires minimal maintenance so when I do need a repair it's not that big of a deal.

Thank you, Michelle, for all of your wonderful advice over the years. My finances were a wreck until I picked up your book about 5 years ago. I am debt free and have lots of savings and now don't have to worry about a car repair bill like I did in the past.

Michelle Singletary: Oh how wonderful.

You know my best friend (hey Terri) told me recently that my invention of the "Life Happens Fund" has changed her life and probably that of many people.

You are proof of that.

And for those not aware of this fund, it's a concept I created to keep people from raiding their emergency fund. So you save separately from your emergency fund for the things in "life" that happen such as car repairs. That way you don't fret about having to go into the stash of cash meant for really bad times, like losing a job.

Anyway, good for you. Glad you enjoyed my book too.

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Washington, DC:"And frankly I'm never impressed with a tax deduction, which means you have spend money"

Thank you! WHY do people not understand this? So many people are hesitant to pay off a mortgage early because they'd lose their deduction. Well from the money they're NOT putting toward their mortgage each month, they could set aside the extra tax and STILL have more money.

Michelle Singletary: Should have said "spent." Typing too fast.

But you completely understand. I so wish others would too!

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For Silver Spring: I would get at least two other opinions before sinking $4K into a car. That could be a down payment on a late model used car.

Michelle Singletary: Why?

If the $4,000 would really fix up the car and it runs great and the person knows it well then I don't have a problem with the size of a repair.

It means they still "own" a car.

Now if the car is becoming totally unreliable and this is the latest in major repairs that also end up stranding you, I would agree with you.

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What do you think of the soon-to-be slots in MD?: Personally, I think we here in MD were lied to, but it passed anyway.

Your thoughts? I know you won't mince words!

washingtonpost.com: Voters Pass Slots Referendum in Maryland

Michelle Singletary: Gambling is a terrible way to raise money because study after study shows it harms economically disadvantaged folks.

Not to mention it encourages people who have a gambling problem.

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Centreville, Va.: I currently have just paid my last car payment. Yeah, I now will have an extra $220 a month. I am currently taking $100 out of my paycheck for savings. I received a bonus last month and put it directly on a credit card. That balance is now $600. I have another card that I have had to use for necessary home improvement tasks. I owe about $3,000 that I budget out and pay every month. I am going to pay off the $600 and have one credit card. Do I use the extra $420 a month to put into savings or plow into my credit card? Or, do I split it up between debt and savings? My objective is to continue to build savings cash for expenses for car repair etc. other needed expenses rather than credit. Thanks!

Michelle Singletary: Split it until you've built up a nice savings for emergencies and then stop saving and pay off the credit card debt.

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Bowie, Md.: Hi Michelle:

You have always struck me as a rational, reasonable person, so I'm curious to know what you're doing differently in this increasingly unstable economy. Putting off purchases? Cutting back on anything in particular?

For some reason, I wasn't all that shaken when Wall Street imploded in September, but I'm suddenly scared to death. I think my job is relatively safe (as safe as any job is these days). I had been saving to replace the flooring in my 45-year-old house and now that the saved money is spent, I'm freaking out a little bit.

What do you advise for someone with no credit card debt, about 2 years left on the student loans and 25 years left on the mortgage? I'm saving in my 401k and personal savings, but I don't know how to respond to the sudden panic I feel about spending money I specifically saved to improve my house.

Thanks for your thoughts!

Michelle Singletary: Count your blessings.

That's how I'm not in a panic.

Now I wouldn't make any more home improvements unless absolutely necessary until I paid off the student loan debt.

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Laurel, Md.: Hey, Ms. Singletary - thanks for the opportunity to express myself. I promise to be polite and civil. I realize that as a conservative, I'm the minority in your audience, but as far as my differences in seeing Barack Obama in the White House - specifically in terms of economics - I don't want to see confiscatory taxation that punishes economic growth, or see anyone's earnings redistributed for false promise of fairness. I don't want to see the Employee Free Choice Act cause employees to be harassed by not voting by secret ballot on whether to unionize or not, or see nationalization of health care, or an increase in estate taxes. Not to mention the price of gas that will go up again because we won't drill at home. I for one continue to be one of 57 million Americans who want no part of an Obama agenda.

Michelle Singletary: You were very civil, so I published. And you certainly have a right to disagree with Obama's policies.

I only ask that you give him a chance. Certainly he has to be better than what we've had the last 8 years.

And one more thing. There are a LOT more conservatives among my fans than you think.

For one, I'm conservative.

And a moderate.

And a liberal.

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Mount Pleasant, S.C.: Re: "Forty seven million uninsured Americans probably have similar stories." Taken from Personal Finance Nov.6th.

Q. Is it possible that you could be among the first to stop throwing this 47,000,000 around without explanation? If you go and look at the original estimates, I believe you'll see that between 10 & 12 million of these are illegal aliens. Another 15 million earn more than $75K and choose not to buy insurance, etc.

washingtonpost.com: Read Michelle's Personal Finance E-letter or subscribe here by clicking on the Weekly E-mail link at the top of the page.

Michelle Singletary: Sometimes don't have space to elaborate. But the message is still the same. WAY too many people in this country do not have access to affordable health care.

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Silver Spring, Md.: Thanks! Pulling back on the loans and the additional savings is what I suspected I would have to do (although I didn't want to, I like seeing that loan balance drop). I am managing to save a good sized chunk of my paychecks for the repair even with the extra payments, but this will help me get there faster.

As for the repair, it's an internal leak in the motor that requires either a brand new one or a rebuilt one. While some might say it's better to use the 4K for a down payment on another car, I don't want to get in debt for a car. I can't get a reliable used car (of course) for $4K! To make sure I'm not getting ripped off though I've gotten names of reputable garages from trusted friends. Thanks again!

Michelle Singletary: Shows you have really thought this thru.

Good for you!!!

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Anonymous: It's me again with the 2,700 left on my car and 17K in student loans...

The full disclosure is that I'm going to grad school next year. My employer will pay some of the cost, but my income will take a hit and I'll have to take out some loans to finance the rest. I'd rather focus on getting rid of the manageable debt before my income decreases, rather than paying down the student loans which will just increase when I go back to school.

I'll be totally honest, I don't completely understand the concept of paying interest to get back money. Since the interest on my student loans is tax deductible, doesn't that essentially negate the interest I'm paying by decreasing the amount of taxes I owe at the end of the year?

Michelle Singletary: Okay, first I WOULD not go back to school without getting rid of that debt, car, student loan, etc.

Why can't you wait before plunging yourself deeper into debt?

Wait.

And the tax money you get back in a deduction never fully erases all the interest you pay. You simply are getting back some of what you pay.

Yes, without the deduction you may pay more in taxes but not as much as in interest.

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RE: Car repairs: My wife and I sunk $4500 into a new transmission and exhaust on a 10 year old vehicle recently. However, we plan on using this vehicle for the next 10 years or more as we have maintained it well and it is in good condition. Some told me I was crazy and that I could 'get' a new car for $15K. That would only be true if I could pay cash for it, which I could not. So add in interest payments over a 5 year loan. Suddenly, $4500 seems really cheap for a vehicle I 'bought for a 2nd time'.

Michelle Singletary: Again, I agree with the keep the clunker running and avoid a car loan plan.

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Baltimore, Md.: Hi Michelle! Thanks so much for your columns and chats - I love all your great advice and thoughtful opinions! I have a clarification question about today's column. Does the percent utilization of your credit cards matter for your credit score if you pay off the balance in full each month? Or does just getting over 30% at any given time hurt your score? I only use one credit card and pay it off in full every month. Thanks!

Michelle Singletary: Good question.

The credit bureaus are constantly taking snapshots of your credit usage. So let's say you are going for a loan and the previous month you maxed out your card or cards. Then yes, that may be reflected in that score pulled at that moment.

But generally, if you pay off your bills every month you should be fine.

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Silver Sping Redux: As someone who ran their last 2 cars 10 and 13 years, I agree with you.

We need to know what kind of car it is before spending $4k.

My point was maybe the mechanic is doing more work than required, or using upgraded or new parts. Maybe used parts are an option. Just sayin' before spending this much money, I want to be sure to have the choice of the lowest estimate for the same quality work with the same outcome.

Michelle Singletary: I'm glad you cleared that up. I see your point.

And as you see from the later posting the person is doing his or her homework.

Thanks.

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Pinehurst, N.C.: Dear Michelle,

I love your commentary on NPR! I wonder if you have any advice for me. My husband and I started our own business 4 months ago doing custom wood and metal work. I also just had a beautiful baby boy 6 weeks ago. We were counting on a relatively small loan - $15,000 to $25,000 to help get the business going. We both have great credit and (had) no debts besides our mortgage and car. The loan was not approved because the business is so new and is in the struggling home improvement sector. I am a teacher due to go back to work in January, but would love to stay home for my child's sake. We have had some good jobs, but need to expand the business with advertising and woodworking tools. Are we crazy to rack up credit card debt to finance tools and some living expenses?

Thanks.

Michelle Singletary: Yes, you are crazy to do this on credit card debt.

Don't do it. Not in this economy. Not ever.

I know a lot of small businesses do this and it's very, very risky.

Save for the tools and things you want for the business. And certainly don't use credit for daily living expenses. Cut back, one of you get a second job (although I recognize that's hard with a new baby) but don't borrow.

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Washington, DC: Hi Michelle,

I respect your advice, and I want to get your opinion on student loans. With the very high cost of education (and the very high cost of not getting an education in terms of lost future income) what do you recommend to students who are not in a position to pay for school themselves? My parents had absolutely no way of paying for my college, and I borrowed approximately $50,000 to attend undergrad. I was able to pay it off in 6 years because I was able to get a good job due to my education. Without a degree, there is no way that I'd be in the position I am now.

I work with many students who are simply not going to be able to afford the tuition at public universities and I always tell them that I borrowed the money and it was the right decision. (I also worked all throughout high school and college to try to pay some expenses, but this didn't come close to paying for tuition and housing.)

Michelle Singletary: Look, I completely understand. Had I not won an academic scholarship to college I wouldn't have been able to afford it.

But I still would not have borrowed to go. My grandmother, Big Mama, would not have borrowed for me to go.

For many students it does mean a different path to a higher education.

For example, attend community college for two years and then transfer to a four-year university. Don't live on campus or in an apt. Live at home.

Go part-time. If you feel you must borrow, borrow as little as possible by selecting an in-state public school.

For every person like you who was able to pay off that debt, I have dozens more who are trapped in student loan debt with jobs that pay well but not that great to get rid of the debt before they are 40 or 50 years old.

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Washington, D.C.: Michelle -

I have been laid off three times over the past six years. My credit has suffered as I always paid my rent and utilities (apartments and utilities can go away) before paying other things and I have a lot of late payments. Now, I'm in desperate need of a new car, or a new used car, anyway.

Will I ever get a loan again?

Michelle Singletary: You will. You will probably have to pay a much higher interest rate but you still can. It will be tough in this credit climate but it can be done.

Have you tried a credit union?

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Laytonsville, Md.: Love your column and chats, and I have recently subscribed to the newsletter. Thank you for what you do for your readers!

My question is a very general, almost philosophical one. How does one reconcile saving for retirement with the thought that we probably need to amass anywhere from $500,000 to $1 million (or more) to finance a possible 30-year retirement period? In your experience, do most folks just get so discouraged by the Sisyphean task of saving so much money (along with the challenges of paying today's bills) that they don't make a good faith effort?

Michelle Singletary: Oooh, love that word, "sisyphean!"

Anyway, I tell people to save whatever they can and not be dscouraged by what calculators or advisers day.

Because what's the alternative?

Save nothing?

Die?

And I tell people to save what they can but also try to retire with a paid for mortgage and no debt and some savings.

It all helps you live in retirement.

Plus I have the best example that it can be done. My grandmother retired with small pension, savings, and Social Security. She lived fine. She didn't travel much or eat out, etc. but she lived well for more than 20 years in retirement.

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Pittsburgh, Pa.: Hi, Michelle! I'm the one who told "Ins and Outs" that you're In!

What advice would you give President-Elect Obama re fixing the US economy? I'd miss your chats, but would you accept a post in his administration, if offered?

Michelle Singletary: You are so sweet.

I'm not sure Obama wants to hear my advice which is the same I give all of you. We've got to get to a point in this country where debt isn't seen as a tool.

We've got to find a way to provide affordable housing and mortgages.

We've got to find a way to provide affordable health care.

And interesting question about his administration?

Not looking for another job but it is exciting to think of serving in an administration that will surely be exciting. Besides if those knuckleheads in the top economic positions had been listening, reading and following my advice since I started this column we wouldn't be in this mess.

For example, I found a column from 10 years ago where I was criticizing homeowners for getting houses with mortgages that represented so much of their net income.

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Washington, D.C.:"borrow as little as possible by selecting an in-state public school"

This isn't a criticism, Michelle, just an addition because yours is a common statement that I think can be misleading: Don't forget to consider privates! For me, a big, fancy private was actually cheaper than the University of Maryland. Some of them have deep pockets and provide excellent assistance!

Michelle Singletary: You are certainly correct.

I should be clear to say check about aid at those schools. Many are stepping up to provide more money.

But if they ain't giving up enough or any money, stay in-state.

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Temple Hills, Md.: The "conservative" or "liberal" label does not indicate who you voted for in the most recent election. One of the problems we are having as a country is self centered materialism. We tend to think more about those issues that impact us personally rather than those that adversely impact the less fortunate. Like voting for slots in Maryland without regard for who it impacts the most: people with less money to spare.

Michelle Singletary: I think I agree with you.

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Alexandria Va.: When, if ever, is it a good idea to pay off a mortgage? My husband and I, both retired, have a pension income plus considerable savings. No debts other than mortgage. I want to get rid of the thing (50k), he argues that most of the interest has been paid already so no point in rushing to pay off remaining principal. He wants to keep the money invested, just in case we eventually need long-term care, which he'd rather not buy insurance for. How would you weigh those two concerns?

washingtonpost.com: Michelle answered a similar question in her e-letter today.

Michelle Singletary: Check out the eletter for an answer.

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Arlington, Va.: You have a book? What is the title? Where can I find it?

Thanks!

washingtonpost.com: Michelle has written a number of books:

7 Money Mantras for a Richer Life: How to Live Well with the Money You Have

and

Spend Well, Live Rich: How to Get What You Want with the Money You Have

and

Your Money and Your Man: How You and Prince Charming Can Spend Well and Live Rich

Michelle Singletary: Here you go.

The first book was retitled for the paperback, "Spend Well, Live Rich."

I'm also working on my third book (just got a contract. YEAH) on faith and finances.

So keep an eye out for it next year.

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Santa Fe, N.M.: Michelle-- I know this may be a bit of a weird question, but it's important.

I recently left the religious faith I grew up in and am attending a different church. It has always been part of my belief to contribute to my church, but my previous congregation had unpaid clergy and so forth, so that money primarily went to buildings and upkeep, etc. I know that the church I'm currently attending relies on congregation support for the salary of the pastors.

Do you have any rules of thumb for financial contributions to a church, assuming that there is no traditional "tithe" (as in 10%)?

Michelle Singletary: Well, my husband and I tithe.

But if you are unclear what your local church recommends, talk to your pastor or religious leader. Find out what he or she would say or what others give.

And if you still don't get direction, follow your heart.

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College Loans: Look into state programs for good students. Some give free tuition (Ga), or free county college for gen ed requirements (NJ). BTW for my daughter, private school grants brought the cost within $1K of public university costs, so we anted up.

Michelle Singletary: Thanks. Good advice.

And I wouldn't mind a $1,000 college bill at ALL!!

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To the conservative poster: What do you think the $700B bailout plan is? A tax increase.

What do you think the stimulus package was? A tax increase.

Paying for two wars? A tax increase.

McCain would increase your taxes just as much as Obama might. We have to pay for this somehow.

Drilling for domestic oil? It's a finite resource; how about depending less on fossil fuels altogether?

Michelle Singletary: Vent baby, vent.

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Chantilly, VA: When do you think the market will become stable? Thanks! Bob...

Michelle Singletary: Bob, if I knew that I would not be typing this right now.

I would be at my villa in Spain, bought with funds that I got because I knew when the market would become stable.

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Re: waiting on grad school: But I HAVE waited! I've spent 3 years wasting away in a job that I do NOT like so that I could get on my feet, save some money, and pay off the used car I had to buy when my old car died. So many of my classmates rushed straight to attend grad school full-time (and now law school because they changed their minds on their careers), so many of my coworkers are buying brand new cars and coach bags, and I've already made a lot of sacrifices to get to where I am now.

Yeah, I know 17K is a lot of debt to have. I'm not happy about that, but I also cannot foresee paying it off ANYTIME soon, because it IS so much. Plus, I'm in a position where I can attend grad school part time (responsible) and my employer will pay some of the costs (responsible).

No, it isn't ideal. It wasn't ideal that I had to take out loans to begin with to attend my state school, it wasn't ideal that my car died when I had just graduated from college and I had no savings and needed a car. But the thought of spending another 3 years in this career field before I can jump into what I KNOW I want to do makes me want to crawl back into bed and stay there for a long time.

Michelle Singletary: I understand your frustration.

But this is what I see in your note:

I want what I want NOW even tho I don't have the money for it.

And my friend all your other friends that you see spending are probably six-feet in debt.

Do you want to be like them really?

If so, then you will be like the rest of America living the American Dream on credit.

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Maryland: For the Obama skeptic - people assume that Obama's party affiliation will mean that he will do a worse job with our finances than his predecessor. I for one would rather have a tax and spend liberal any day, than a spend and spend "conservative". Just sayin'.

Michelle Singletary: Enough said!

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Arlington, Va.: Hi Michelle,

I need some tough love advice from you. My husband and I have no credit card debt. We have a car loan for about $9,000 at 4%; a private student loan of about $30,000 at 8%; and a federal student loan of $4,000 at 5%. My work pays a large chunk of my federal loan once a year, so that will be paid off next year.

We have an emergency fund that is about two months of bills/rent. Do you think this is enough? We have no "life happens" fund. How much do you think we should save for that? Should we save completely for the emergency/life happens funds first, and THEN pay more toward our loans?

Thank you for your help and advice. I feel a little lost about where our money should be going right now. Many of our friends are now buying houses while they are mired in credit card and student loan debt. I would love a house, but I want to follow your wisdom and be debt free first!

Michelle Singletary: I would put a little in the life happens fund, depending on your life but let's say $1,000.

Then I would concentrate on being debt free, taking any and all extra funds from cutting back, etc. and pay off all the loans, car and everything.

So tonight, draw up a plan and list all the debts starting with the one with the lowest balance. Put extra money toward making the minimum payments on the rest.

When that debt is paid off, move to the next and so on.

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Temple Hills, Md.: I am a bi-vocational pastor of a small church. Because we do not have any bills, other than our mortgage, my family is in a position so far to weather the economic storm. We also have a financial counseling ministry in our church, but when we presented a free Financial Freedom seminar, very few people attended. I was wondering what can we in the faith community contribute to our community during these difficult economic times?

Michelle Singletary: Keep having the programs. At first when I started a financial program at my church the crowds were small.

Now we get dozens and dozens of people signing up each session.

E-mail me and I'll tell you more about the program I created called Prosperity Partners.

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Arlington, Va.: I keep having the same argument with my husband. He thinks that some credit is good. I come from a different country, in Europe, where I learned to save for things ahead of time. And pay cash. So I think that even low interest, tax deductible loans is not desirable. I am always puzzled by people not paying off loans because the interest is tax-deductible. But that is interest that YOU have to pay. But he thinks that if you reinvest it, in a safe investment vehicle, it is worthwhile. He even doesn't see anything wrong with using home equity for non essential house improvements. Which to me, is a luxury, that has got too many people in trouble. Help me convince him.

Michelle Singletary: Sign him up for my columns (Thurs and Sun) and my e-letter.

Maybe after a regular dosage of me, you'll be able to win him over.

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Annapolis, Md.: Why should you pay off lower balances with lower interest rates first? That seems counterintuitive.

Michelle Singletary: Because people get a psychological boost when they get rid of a bill.

It charges them up. And, after all, money is about the mind game.

When people put a little on all the debt concentrating even on the ones with the higher interest rate it takes longer to pay the debt off. They get discouraged. They stop trying.

My way, they feel like they've accomplished something. I've done this for years with people and it works.

In fact, it works so well they get really charged and pay off the debt faster than our plan, which in turn erases the extra interest they may have paid starting with the debt with the lowest balance as opposed to the debt with the higher interest charges.

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Grad School advice: First of all, Grad School should not be comparing herself to her peers. She has no idea how much debt they have, despite their collections of handbags. I went to grad school part time also, at a state college taking 2 classes per semester. I paid as I went, and my employer reimbursed me for part of it. I am unclear why there is a need to take out loans at all, if you are working. Are you cutting back hours? You should not have to do that to go to school part time. And remember that juggling both will increase your stress level and decrease your free time significantly - but you will achieve your goal in the end!

Michelle Singletary: Amen!

_______________________

Michelle Singletary: I'm so sorry I have to stop. I would love to stay and finish answering more questions. But have to go. Got my Sunday column to finish.

Thank you all. And please subscribe to my weekly eletter. I answer some leftover questions there.

Thanks to you all and have a wonderful "saving" day.

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