■ Save or pay?
■ 401(k) and IRA
A debt in the family
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By Suze Orman
I helped my brother and sister-in-law refi-
nance their home, because their credit score
was too low. I recently tried to purchase a car,
but their late mortgage payments on the loan
are hurting my credit. Is there a legal way to
get my name off the refinance agreement?
Roosevelt, New York
THE FACT THAT their credit scores were
already low should have been a tip-off that it was
going to be risky for you to “help” by being on the
mortgage. Now you see why. This is why I always
caution people to resist the temptation to offer help
without carefully considering the potential repercussions for their own financial situation. At this
point the only real solution would be for your
brother and sister-in-law to refinance without you
on the mortgage. If they can’t or won’t, push them to
pay on time. Or set up a system where they pay you
the mortgage payment 10 days before it is due and
then you can make sure the payment gets to the
mortgage company on time.
I am 31, a father, married almost 10 years, with
two kids, 5 and 10 years old. I work 60-plus
hours a week as an emergency medical technician and have a part-time job as a dispatcher. I make $1,300 every two weeks and have
about $2,500 a month in bills. My wife is a real
estate agent and is staying positive and busy,
but she has had no check in several months.
I have $22,000 in credit-card debt at about 18
percent interest; my wife has $15,000 at 13
percent. We have $90,000 in savings. Should
we use this to pay off the debt or get personal loans, debt consolidation or home equity?
Having the money in the bank helps me sleep,
but does it make sense? I’m scared of being
laid off and not having enough to live on.
Clifton, New Jersey
I RECOMMEND HAVING at least eight months of
living costs set aside in an emergency savings fund.
Based on what you tell me, that is about $20,000. So
if you paid off the $37,000 of credit-card debt you
and your wife have, that would still leave you with
$53,000 in an emergency fund, which is more than
enough to sustain a family setback. However, the
fact that your family can’t make ends meet just on
your current wages presents a big danger. If you pay
off the credit cards and then run the balances right
back up again, you haven’t fixed anything. To make
sure that during this rough stretch you will not be
tempted to run up new credit-card debt, you must
cut back on your spending as much as possible. And
your wife should consider taking on part-time work
until things pick up with real estate. You are one of
the lucky ones given that you have so much in sav-
ings. The key is to make the most out of those sav-
ings and turn this situation around once and for all.
Six months ago the small practice I work for
was bought out by a large corporation. The
corporation has a 401(k) plan, which I started
to invest in. I also invest in a traditional IRA.
Is this an issue? Also, I will be getting the reimbursements from my profit-sharing plan
with the small practice. Where do you think I
should put the earnings: in my 401(k) or in my
traditional IRA? I am 55 years of age.
YOU CAN HAVE BOTH a 401(k) and an IRA. In
fact, it’s great that you have two accounts that will
help support you in retirement. If you have at least
$5,000 in the 401(k) you have the option of leaving
the money right where it is when you do retire. But
in most instances when you leave a company, I recommend considering what is called an IRA rollover.
This is simply the process of moving your money
out of the 401(k) and into an IRA that you control
at a brokerage firm or mutual fund company. Just
make sure you do a direct rollover to avoid any tax
complications. Your profit-sharing account should
also be eligible for a rollover. The advantage of creating an IRA rollover account is that you are free to
choose how you want the money invested rather
than being confined to the investment options
offered in a 401(k) or a profit-sharing plan. As far as
staying with your current 401(k) or IRA, make sure
you know what it is costing you to invest within
those accounts. I prefer investing in the lowest-cost
exchange traded funds (or no-load mutual funds).
The less you spend on fees, the more money is left
to grow for your retirement. C
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