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Michelle Singletary
Washington Post Personal Finance Columnist
Thursday, January 15, 2009; 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.

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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: Happy New Year!

Lots of questions already so let's get started.

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Arlington, Va.: Hey there Michelle, Bit of an unconventional question, but I'm going on a cruise in May for 3 days (which I've saved for and paid cash). I'm having a bit of trouble determining how much money I'll need for my actual on-board expenses. Any advice on how much to budget? I've never been on a cruise, so I don't have a good idea of the costs, and haven't been successful at finding this info online. One thing is for sure, I want to be able to enjoy myself, but not have to use a credit card to do it! Thanks!

Michelle Singletary: Hi. Nice question to start with -- somebody whose got money to spend.

Check with the cruise line or the company that booked the trip. Typically for a cruise you tip everybody and their mama. So you need to set aside an envelope with that cash. Find out how many people and how much per person.

The only costs would include if you want to take some day or event trips when the ship lands. Those can be pricey if booked thru the cruise line. So check local things before you leave to cost out any day excursions. Then there is of cost money for presents, etc.

But generally if you just want to cruise back on the ship or walk around you don't have to spend a lot of money becaues food is included.

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Augusta, Ga.: I have about $30,000 in savings. It is in a savings account. The interest is less than 1%. What should I do with the money--keep it parked in my savings account, play the market, or find something else (what?) that would give me a greater return on my money? HELP!!!!

Michelle Singletary: I can't answser your question because I don't know what you've earmarked the money for. If it is your emergency money you don't play anything with it. You want to keep this money safe in an FDIC-insured institution. But you should look for a higher-yielding account that certainly give you more than 1 percent. Try ING or another internet-only FDIC insured bank. Go to www.bankrate.com to look for better savings rate.

If this is money you may need to use in 5 years of less don't invest it. Park it in the highest yielding savings account you can find.

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For Arlington: Usually, you have to pay for alcoholic drinks, so if you plan on having a glass of wine on board, you'll need extra money for that, too.

Michelle Singletary: Or just not drink at all and save the money and calories.

Been several cases of people falling overboard on these cruises. Just saying :)

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washington, dc: Is it better to open a SEP at work or an IRA at the bank?

Michelle Singletary: For those who don't know this is how the IRS defines a SEP:

A SEP is a simplified employee pension plan. A SEP plan provides employers with a simplified method to make contributions toward their employees' retirement and, if self-employed, their own retirement. Contributions are made directly to an Individual Retirement Account or Annuity (IRA) set up for each employee (a SEP-IRA).

Check out IRS Publication 560 for more details.

I should also note that with a SEP the annual contributions cannot exceed the lesser of:

25% of of what you earn or $46,000 for 2008 ($49,000 for 2009 and subject to annual cost-of-living adjustments for later years).

With an IRA you can only contribute $5,000 with a $1,000 catch up provision if you are 50 or older.

So if you think you can contribute more than the $5,000 or $6,000 limit and you meet all the qualifications may make more sense to to a SEP.

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Lanham, MD: Happy New Year Michelle!!!! My hubby and I were planning to purchase a home in February. We have 10K down + 5K in free/grant money to add to the closing, etc. We are planning on going thru a 1st time program which locks the rate in at 4.5% -whoo hoo!] and seeking a home in the low 170s range -I plan to find the needle in the haystack!]. This ball has been rolling, we have been approved, etc. THE ISSUE: My car just gave out, and we're awaiting a mechanic's diagnostic.. but the best scenario is we'll need another car before the end of the year. My hubby wants to go straight to a dealer with our house savings, and wait on the house. I want to buy the house first, and then reevaluate our finances. Any input?? We work too far out to take public transport -plus we have a school-aged child + 1 on the way due this March] I'm afraid if we wait on getting the house, we'll be forced to get the car and then our debts would increase. If we get in the house, we can see if we can save and buy used or even check the classifieds. He just doesn't want me and new baby in a lemon.

Your thoughts? House or car?

Michelle Singletary: I say depending on the mechanic bill fix the hoopty. A repair bill is (unless major, major trouble) is going to be far less than buying a new or used car.

My other question is do you have an emergency fund aside from the money for the house? If not I would wait a bit on the house anyway.

If you are in this position now -- that a major car repair -- could wipe you out, then you are not ready for the house just yet.

I also wouldn't take on a car loan if I'm about to get a house. That could affect your credit score and loan package.

So right now you need more info. How much is it going to cost to fix the car. Will the fix keep it going long enough for you to save for a paid-for used car or at least a reasonably priced used car.

In a small way I agree with your husband about not taking on any debt in the car department and waiting on the house if the car is a priority.

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Washington, D.C.: Hi Michelle,

I am separated with two young sons and my husband lost his job about 5 months ago (exploring child support but not hopeful since he has no job). I am solely supporting myself and my children and finding it difficult to cover all of our expenses. I have stopped dining out, bring my lunch, don't have cable etc., but my income just doesn't cover the monthly bills. I think I have to cut back my TSP contribution to 5 percent or possibly less(I currently do 10 percent). Because there really isn't any other thing I can do to cut expenses (my childcare expenses are significant), do you agree about reducing my retirment contribution?

Michelle Singletary: I do agree. And I would cut it out completely for now.

Although I'm a HUGE advocate for saving for retirement girl you need the money right now so that you don't go now financially. Even if there is a match, I would say cut back until you can figure out how to make income match your expenses.

Can you move to cut housing costs? Get a roommate (I know, I know people don't like to do that with kids but it's too tight not to at least explore the option perhaps with a close friend or relative).

Also and I know this is going to shock folks but have you really explored everything to keep your marriage together? Even without a job, having your husband help at this point could allow one or both of you to get a part-time job. And he wouldn't be paying for the cost of his separate living expenses.

Just asking.

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Reston, Va.:

Michelle,

I love reading your weekly financial advice columns. My question, what would be your advice to finding out your spouse was hiding money in a secret account.

Michelle Singletary: Shoot, I would be pissed!

But don't explode. Try to stay calm and find out what's going on. Something, like:

You: "Honey, I found out you have a separate account that I didn't know about. What's going on? Why do you feel you need to keep money in an account that I don't know about."

Avoid accusory words, "secret" "you punk, louse," etc.

And have a counselor on standby cause there are some issues.

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Staunton, Va.: Hi Michelle, Love your column. We always try to follow the spirit of your advice. We're in a position to refinance at lower interest rate, and we need a new roof. You usually advice against treating your equity like an ATM machine, but what about needed repairs? It's very unlikely we can set aside $7,000 to $10,000 in cash without wiping out our emergency funds. My husband and I are journalists, so our jobs are on the line these days with the awful economy. Any suggestions? Thanks!

Michelle Singletary: Tough times. So here's how I would approach it.

Find out how much it cost to really fix the roof and whether not fixing it will create major damage. In other words is this something that can wait or get a cheaper fix for now.

If you are unsure about your job situation I agree I wouldn't deplete the savings.

So, in this case if you absolutely "need" the roof done pulling that money and that money alone out of the house during the refin is acceptable....ALTHOUGH try your best to find another way to pay for it.

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Not a question...: Just a thank you. In the past we lived paycheck to paycheck, struggling to make ends meet at the end of the month. It is still a struggle, but thanks to your suggestions and advice we are slowly but surely chipping away at debt and building up an emergency fund. Thanks for the guidance.

Michelle Singletary: You are so very welcome. I love to hear testimonies like this.

And yes it can be slow but sooooo worth it when you aren't living paycheck to paycheck. Almost better than .... well you fill in the blank.

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Maryland: As an example for the cruiser...my parents and I took a 7 day cruise last year. None of us drink. We took one excursion through the ship. We went on a line where the tips were automatically billed - 10 per person per day.

After 7 days, our on board charges were around $400. $150 of that was the excursion, $210 was tips - the last amount was for a few souvenirs. (6 t-shirts and a shot glass.)

Enjoy the trip!

Michelle Singletary: Thanks for passing this along.

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Washington, D.C.: I have a friend who lives in DC who really wants to buy a house in Maryladn to move her children to a better school district. She has a good job making decent money making at least $45-50K a year , a credit score between 500-700, with no money for a down payment. She does have some credit card & student loan debt. She does not have a college degree, though. I have been watching your show, Singletary Says on TVONE. Will you please advice her on the steps she needs to take in reaching her goal. I have suggested that she should rent in Maryland until she is ready to buy, but she believes she can find somewhere to buy within a year and a half.

Michelle Singletary: You are a good, good friend, giving great advice.

Your friend is so NOT ready to buy a home and would probably have trouble doing so anyway with the tougher lending standards.

First let's look at her financial profile:

-- credit score in the 500 to 700 range. HUGE range. But anything below 700 across the board is going to make it tough for her to get a good home loan. In the case of a mortgage the lender will take your middle credit score.

-- She have credit card debt. Not good.

-- She had student loan debt. Not good.

-- Her income is decent but it will be hard finding a home in the Maryland in a decent neighborhood with that income alone.

So you are right. She should rent first and build up an emergency savings, pay off the credit card and student loan debt and get ALL her credit scores above 700.

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Vancouver, Wash.: Hi Michelle -

There are several banks paying 4 percent or more on both CD's and Savings accounts and are FDIC insured. (See Bankrate.com). But the banks do not have high ratings (3 or 4 stars). Is a person's money safe in these Banks despite their low rating? Or does the fact that they're FDIC insured trump the rating?

Thanks -

Michelle Singletary: Your savings are safe up to at least $100,000. So no matter the bank rating your savings if FDIC insured are safe.

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Manassas, Va.:

This article in last Saturday's Post made me so mad. The homeowner bought a house, refinanced twice, spent the money and then walked away from the house. "He said he and his former wife bought the Bealeton house for $214,000 in 2003 and refinanced it twice until the mortgage on the property was for more than $400,000." Isn't this stealing? Shouldn't it be treated like a crime?

washingtonpost.com: Walking Away, And What It Leaves Behind

Michelle Singletary: Ya becha!!!!!

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Arlington, Va.: "house vs. car" is in a similar boat to me, except our repair bill was $6k, thrice the value of the 10-year old car it would fix. We bought a used car. We debated paying cash and using up entire our down payment fund (a paltry $10k at that), but for now financed it at 6.5%. We have no prepayment penalty, so if we change our minds about buying a house this year, we can pay off the car. (We are not touching the cash unless it's for one of those two things, or an absolute crisis). With a growing family and pets, we're rapidly outgrowing our current rental, so we were just nervous about getting rid of our entire down payment when it took years to build up.

Michelle Singletary: I understand why you did what you did. But do you have an emergency fund in addition to the $10,000 home fund?

If not listen to me. That $10,000 just became your emergency money and now you are saving to pay off the car AND to buy a home.

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Louisville, Ky.: Thanks to you, Michelle, I persevered last year and finally paid off what had become as much as $19,000 of credit card debt (years of living on credit during grad school, then just plain stupidity and extravagance). As soon as I cleared that debt, I started putting more into my retirement account, something I had promised myself I needed to be more serious. I upped my contribution in excess of the employer/employee match I had going on.

The problem? Like everybody else, I'm getting my quarterly statements and all that money just feels like it is being flushed. At the same time, I've been living frugally and aggressively saving toward a downpayment on a house my future husband and I want to buy later this year, if possible. Does it make financial sense to scale back that extra percentage from 5.5% (8% total employee contribution) to perhaps 3% in order to get that extra money to put toward a downpayment?

Thanks for your inspiration and tough love.

Michelle Singletary: I might scale back the retirement contribution not because of the market but because you have another immediate goal -- buying a home.

While it's vital you save for retirement, you should save/invest money you can afford to lose.

Doesn't appear you can "afford" to lose that money since you want a house.

So pull back to the match and take the rest and put toward saving for your home.

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downtown: Why did you say student loans are no good? As long as you're paying them back whats the deal?

Michelle Singletary: The deal is it's debt.

Debt = bondage.

Lose a job, get sick, etc. no loan looks good at that point.

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For Washington D.C.: I know they could be more issues than this but if the husband isn't working why isn't he watching the kids more so childcare expenses could be reduced?

Michelle Singletary: Good point?

But he may be looking full-time I hope.

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secret account: I hope that wasn't an account discovered by an abusive husband - women needed to escape are often advised to put away some cash in preparation for their get-away.

Michelle Singletary: I didn't get that impression from the question.

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Herndon, Va: Hi Michelle! My newlywed wife and I are planning on purchasing our first home later this year. We plan on taking advantage of one of the 3% down mortgage options still available, but should have money left over. My question is if we end up with $10k left over after the down payment, should we use half of that to buy down the interest on the mortgage or should we save all of it for "emergency money" now that we'll have a mortgage and home maintenance to worry about?

Michelle Singletary: Probably emergency fund if you don't have one.

But work the numbers. If you buy down your interest rate how long before you break even and will you be in the house that long.

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Washington, D.C.: I have what to me seems like a pretty large number of credit cards--5. Don't worry, I don't carry a balance on any of them, ever! I get different benefits for each of them (airline miles, no-fee international transactions, etc.) so I like having them but I have heard that the large amount of available credit could ding my credit score even though I never use it all. Would it help to ask some of them to lower my credit limits or would that make things worse? I am thinking of buying a house sometime in the next year so I want to keep my score as high as possible.

Thanks--I really enjoy your columns and chats!

Michelle Singletary: I think you are fine. Now if you max all the cards out at once just before you buy a home, even if you pay it off the next month that could hurt your score the day the lender pulls it.

Also, something to consider the lender may factor in all those cards and the available balance.

Otherwise, just don't charge a lot even if you pay the cards off every month and you will be fine.

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Hyattsville, Md.: Michele, People, or rather pundits , are now saying the the US has to start to live within its means. My husband and I have always lived withing our means. We had hoped to have a comfortable retirement. (We are within 5 years.) There seems to be little hope of this happening any more. We have a mortgage and the property taxes are approaching the PI amount. But, the value of the house is going down. We bought a small rental house some years ago and the value of that is going down, too. We put money inn 401k's and IRAS. The value of those is going down, down, down. Finally, my husband gets a small state pension that comes with health insurance. Well, the governor wants to really raise the premiums and copays.

I know we could be a lot worse off. Even so it seems as though we were cheated.

Michelle Singletary: You did the right thing. That's really at the heart of your response.

You were not cheated. Life just happened. And a least as you already know you are better off than a lot of people.

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DC: For the wowan who is separated, could her husband take on the child-care. He is out of work. It would dramatically reduce her child-care expenses.

Michelle Singletary: Been suggested but thanks again. Something to consider.

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Atlanta, Ga.: re: 'hidden' account.It's also cultural, many cultures tell a woman to have their own money 'just in case.' This was due to women not being able to work and most of the time having to rely on the husband, etc. It's an antiquated way of looking at things, but happens in many different cultures.

Michelle Singletary: True that.

But wrong. When you are married all your business should be on the table.

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NoVA: Michelle,

Just found out unexpectedly that I will be out of work. Thankfully, I followed your advice and rehabbed my finances over the past 6 years so I have six months of living expenses saved.

The weird thing is, I'm really scared about tapping that money if it takes me more than a few weeks to get a job (I can live on "life happens" for over a month). It's my security blanket, so I don't want to touch it. When is the "right" time to break into the emergency piggy bank?

Michelle Singletary: Good question.

The thing is to remember you saved just for this time. So first cut back as much as you can. Then use the life happens money. Then if you still haven't found work, tap into our emergency money. It's okay! Thank goodness you have it. So don't feel guilty.

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Second car: Michelle

I bought a new car this summer and still haven't sold the old one. It's 8 yrs old, long since paid off, and doesn't add more than $400 a year between both insurance and property tax, if that. (maintenance, if any, is extra but I figure I won't drive it that much anyway).

I can easily afford to keep the car (single, making very nice money, 6 figures in savings, yada yada) but is it stupid to keep a second car if I rarely drive it? My logic is that it could be a snow car (why take the nice new one out to possibly get hit) or if the new one is getting warranty work done, etc - another car is nice as a backup.

Thoughts?

Michelle Singletary: Bless someone else who "needs" a car.

That's what my husband and I do. When it's time to get another car (8 to 10 years later) we give away the used car, which often is still well useable.

Have always done that. We have never traded in or sold a used car. We give it to a relative in need.

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Washington, D.C.: I am 52 year old home owner who will be eligible to retire in 3 years. I currently have 8 years left on a 15 year mortgage. I cosigned for my daughters student loan and due to the economy (difficult for her to find a job that will pay her what is needed to repay) Sallie has come after me. The interest rate is low, but my intention was to own my home free and clear at the end of the 8 years and be debt free. Should I think about refinancing for another 15 years. My current rate is 5.25%.

Michelle Singletary: I would not refinance if you are that close to paying off your mortgage.

If you can just pay on or off the student loan.

And people this is why I say NEVER co-sign on a loan.

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Cruising Tips Find the Experience Cruisers: We met up with an older couple who shared a ride in a cab versus the $50 excursion cost with the cruise line to the same beach. Cost for two people by cab..$10 round trip!

Michelle Singletary: Great tip.

Man there are a lot of you who cruise. Nice that people can afford to still vacation.

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Baltimore, Md.: Hi Michelle, Happy New Year! After reading your first book (can't wait for your new release later this fall) and a few other experts and columns/articles, it finally dawned on me to refocus our financial life and the importance of getting rid of debt and increasing wealth. But as I get a plan ready for our family, my spouse's already non-benefited, varied hour/week job is in danger b/c he has hurt himself for the 2nd time. Hence, no money from that job that we need to pay bills. Aside from prayer, is there some advice you can give in how to maintain sanity while we press through this "season" of our lives. I handle the finances, so I'm more stressed about it. Do I delay the plan to reduce debt ASAP (we have about $700 EF and $3400 monthly expenses & $32 K debt, not including mortgage)?

Michelle Singletary: You poor dear. I certainly hope this season passes soon.

Yes, cut back on the fast debt repayment until your household income stablizes. Just pay the minimum for now to preserve the cash you need (also cut back as much as possible).

When things get better get right back on track.

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baltimore md: Hi Michelle,

I am 45 with no retirement savings. Where do I start?

Michelle Singletary: Today with whatever you can spare.

But first make sure you start saving for an emergency. Save up at least one month's expenses.

Then put some away for retirement. Start with $10 if you have to. But start. Try 1 percent at first. See how that goes then bump it up.

The point is just start.

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catonsville, md: Hi Michelle Loved you on Meet the Press!!!! Any suggestions for college savings for a child that is a freshman in high school. I was thinking of a high yield ING account or would a CD be a better option.

Michelle Singletary: Thanks. Meet the Press was fun but I was so nervous.

Anyway, I would normally advise a 529 plan but your kid is so close to going that you may not want to risk the money in this market.

So yes, find the highest yielding savings account you can. Also consider having him or her go to a state school, commute, start with a community college, etc.

Also not sure of your income but have your child apply for every scholarship avaiable. If you are low to moderate income many of the IVY league schools will let him or her go for free.

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New widow: I am a new widow with teenagers. There was life insurance, which I have applied for. When it comes, I need to invest to make it last my lifetime and launch the children. What do you suggest?

Michelle Singletary: I'm so sorry for your lost.

First thing, don't do anything with the money for at least a year. Take the time to really consider all your options.

I would also hire a fee-only financial planner to help you invest the money to last.

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Knox, Tenn.: Thanks for your column today on the change to the required minimum distribution for IRAs in 2009. I inherited an IRA from my father and the funds are now in a beneficiary IRA. Does this change affect me for 2009, or will I still have to take the RMD? Thanks

washingtonpost.com: IRA Change Helps Retirees Ride Out the Storm

Michelle Singletary: You know I'm honestly not sure abut an inherited IRA.

Please check with a tax professional or the IRS. Go to www.irs.gov.

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Washington, D.C.: Hi, Michelle. Can you recommend a class or workshop in managing personal finances? I want to remain debt free and would like a class to help teach me how to make a good personal budget, steps to reduce debt and maintain a good credit rating, and ways to prevent identify theft.

Michelle Singletary: Go to www.debtadvice.org.

It's a credit counseling site but you can find an agency that provides budget training etc. Also try the community colleges or community centers which often offer low-cost personal finance classes.

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money and my man: Michelle, my husband will not look at a budget. Doesn't want to know the math. He trusts me when I say we can or cannot afford something, and is very frugal by nature, so the issue isn't his spending. I'm just getting more and more frustrated being in charge of everything financial. I don't want to carry this burden alone. I enjoy budgeting and financial planning and am decent at it, but it's OUR money and I'm just not comfortable with the situation as is. Should I just accept this is who he is (he really does get very very anxious when money matters come up - high blood pressure and nauseated, even) and that this is how my marriage works, or should I keep pushing? I tried a monthly "beer and budget" date, but he keeps wiggling out of it.

Michelle Singletary: I wish I had more time to fully answer this.

Keep trying to engage him. If I may see if there is a financial literacy program in your community or church he might go to with you.

Otherwise, you may be stuck. Often in marriages one spouse does end up doing a certain task. But keep sharing your frustration with him. Maybe one day he will hear you.

Also, get him my book "Your Money and Your Man." There is an entire section about handling your money with your honey.

OR...you could just hold out on the nookie once or twice until he looks at a budget.

Sorry couldn't resist. Just kidding on the last point!!!!

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Naptown, MD: Hey Michelle,

Not a question, just a comment. Made the last payment on a $12,000 credit card debt on Monday. Took 2 years to get that balance to zero, but it's done! What a great feeling...it really is like losing weight. You learn to live with a few extra pounds on your frame, and when you lose that weight, you feel so much better, and happier. So, just a note to all those struggling w/bad debt - just keep chipping/plugging along to get to where you want to be.

Michelle Singletary: Wonderful note.

Thanks.

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Michelle Singletary: Man I looked up and it's 1:13. Shoot.

I'm so, so sorry if I didn't get to your question. I feel so bad when so many of you take the time to send in a question or comment.

So this year like last, I'll answer some leftover questions in my weekly e-letter (please sign up if you don't already subscribe).

I may also address your question in a column.

Thanks again for joining me today. It's staring out to be a tough year financially but I still believe a change is gonna come. This too shall pass.

Be back in two weeks.

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Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.


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