Personal finance chat with Suze Orman

Suze Orman is a financial planner and author best known for her CNBC television program The Suze Orman Show. She talked personal finance with Boston.com members on Monday, March 9.

Suze_Orman: Hello everybody. Obviously, I am Suze Orman. Many people refer to me as the 'money lady' but today, let's hear from you and see what it is that you want to know from me. Ask away.

dontfight__Guest_: Hi. I am in my early 30s and own a condo with a hefty mortgage. This does not allow me to contribute to my Roth or 401K anymore. I have $20,000 combined. However my employer contributes 5 percent of my salary automatically. Is this enough for a few years until I get a raise? What are your thoughts about real estate vs. retirement?

Suze_Orman: What I think really doesn't matter. The truth that matters is you don't have money to put into your retirement at this point. It is very hard to beat yourself up over something you are trying to make the best of. The question should really be: How do you free up more money so that you can have your cake and eat it too? The best advice I could tell you is the higher your FICO score, the lower your interest rates will be on everything you purchase as well as your insurance premiums for your car will also go down. The more money you save in interest and insurance premiums, the more money you have to eventually put into your retirement account. I would prefer a Roth over a 401(k) or 403(b) that does not match or after the point where the employer no longer matches.

nancy__Guest_: Hi, Suze. I have two kids in college and our Adjusted Gross Income was $199,300 for 2006. Is there a college tuition credit this year? Last year, it was line 35. How do we go about finding a financial advisor? Our AGI was $145,000 in 2005. We both work 50-plus hours a week and got hit hard on taxes this year. Help please!

Suze_Orman: In my new book, "Women and Money," in the commitments chapter as well as in my revised edition of the "Nine Steps to Financial Freedom," there is a detailed section on how to find a financial advisor. Please check that out. But I will forever say the best financial advisor you will ever find is the one you look at every day in the mirror. Rule of thumb: if a financial advisor suggests a variable annuity or a whole-life insurance policy, or mutual funds that have a letter A or B at the end of their names, you most likely have a salesperson rather than a pure financial advisor.

ripley79__Guest_: What things should I say to a creditor when asking to lower my interest? I have a very large balance credit card that’s already two months overdue. The bank has jacked up the interest to a crazy one, but I feel embarrassed to ask them to lower it since I am already in over my head.

Suze_Orman: It is not about being embarrassed. It’s now that that you are two months late, you have dramatically affected your FICO score. And the chances of them lowering your interest rates are nil. So 30 percent of your FICO score is made up of your payment history. Do you pay your credit card bills on time? Forget about the interest rate here. Get your accounts current now!

Maura__Guest_: What is the rule based on your combined income you should use when determining your max mortgage payment? My husband and I want to buy a home and not be "house poor,” but want to be realistic about payments, taxes, etc.

Suze_Orman: I don't mean to sound like I am pushing my products, but my new FICO platinum kit, that is available only at QVC.com, not only will give your three FICO scores, but there is a home-coaching model that works with more than 50 variations of loans that will show you exactly what you can afford and what you can not afford. It takes all the guesswork out of it along with the actual interest rate that you will qualify for your loans. I would check that out and know for sure.

self_employed__Guest_: Suze, I am a big fan. I am 40 years old, married with two boys, ages 13 and 9. I am self-employed and have $35,000 in a traditional Roth IRA, $15,000 in a Roth IRA contributing the maximum every year, $35,000 in an online savings account earning 4.5 percent and $40,000 in a regular savings account earning less than 1 percent. I have a home worth approx $400,000 with about $240,000 in equity with 20 years to pay it off at 5.325 percent. I have an extra $300 to save. Should I be putting more away for retirement or should I put it towards my mortgage?

Suze_Orman: I would only put it toward my mortgage if I thought I was going to be staying in my house for the rest of my life. If you are not, do not do so. And why do you have such a large amount in your savings account? Are you so rich that you can literally throw away $1,600 a year in interest? Get it to a 4.5 percent or a 5 percent account now!

Jen__Guest_: I had to borrow $38,000 from my 401(k) to cover some unexpected costs when the house we were selling didn't sell when we thought it would. We were paying two mortgages for eight months and had to drop our expected sale price by $50,000. We have to re-finance our new house to pay off the old one when it sells this month. Money is very tight. The 401(k) loan is costing us $800 a month to payoff in 5 years. My accountant recommended that we bite the bullet on the loan, take it as a withdrawal and prepare to pay the 30% taxes and penalty next year (approximately $11,000). I can take the $800/month and save it so that we have $9,600 saved against that tax burden next year and after that, we'll have $800 month more in our budget. But then I won't have the $38,000 plus interest back in my retirement account in five years. I am 31 and have around $50,000 left in my account so all is not lost, but it kills me to think of what that $38,000 would have grown in to. Would you follow my accountant's recommendation or try to pay back the loan on an already-stretched budget? Thanks!

Suze_Orman: Pay back the loan. Done.

Mykali__Guest_: Hello! I'm a single full-time working parent of a preschooler, and a prospective first-time home buyer. Here's the rub: I make slightly more than the maximum to qualify for soft loans or similar programs for low-to-moderate income families, but can't save enough (after preschool costs, rent, bills, etc.) to afford much by way of a down payment. Is it better to pay out all debt before taking on a mortgage or are there other creative things for people like me to consider when it comes to home financing?

Suze_Orman: If we were in different real estate times, such as four years ago, I would have a different answer. Given that I do not like what I'm seeing in the real estate market on any level, and the loan debacle is far greater than any of us know, I would not be in a rush to buy a piece of property as a home if I did not have the money to do so, because you aren't going to miss out on a bargain. In fact, you may get a better one from your other people who were in your exact situation who jumped in thinking that real estate would save them, versus them saving for real estate. Don't do it.

Stromile__Guest_: What are your thoughts on advisor-based 529 plans vs. ones that are bought directly from a state? Is there a specific plan that you recommend?

Suze_Orman: When it comes to 529s, the only person you should be taking advice from is the nation's expert on these plans and his name is Joseph Hurley. You can find him on savingforcollege.com. He the nation's expert on 529s, which change constantly. When I need to know about plans, he is the man I go to. You should go to him directly.

juliet__Guest_: Hi, Suze. My husband and I have an AGI greater than $160,000, which makes us ineligible for a Roth IRA and precludes us from contributing pre-tax to a traditional IRA. Would you recommend we contribute to the traditional IRA post-tax or just invest the money in a non-retirement account?

Suze_Orman: I suggest you contribute to a non-deductible IRA. And get ready to convert that money to a Roth in the year 2010 and beyond, when the AGI requirements for a converted account go out the window. Just remember not to convert everything all at once or you will be hit with a tax bill that will not make you happy.

ThePreacher__Guest_: Hi, Suze. I was recently appointed to my first church as the pastor. So my wife and I finally sold our home to move into the church's parsonage netting around $35,000 in profit. We likely won't own a home for a while, so we are wondering how to invest so we will be able to buy a home when we retire in about 35 years. We have no debt besides $25,000 in student loans. We have about $60,000 saved for retirement, and our combined annual income is around $135,000. Any thoughts on how to keep pace with the real estate market?

Suze_Orman: If, in fact, you know that you really will have 35 years before you need to buy a home, why not take the money you can invest? Every month, put it into a good, no-load mutual fund, where over a 35-year period of time, if you pick the fund correctly, such as the Vanguard Total Stock Market Index fund for 90 percent of your money, and the Vanguard International Growth Fund for 10 percent of it over all those years, you should average a nice return to get the most out of your money.

Creditcard_Hostage__Guest_: Does it affect your future credit if you go to one of those credit services that helps straighten out debt, getting lower interest rates and working out a payment plan with the credit card companies?

Suze_Orman: No. Just make sure that it’s affiliated with the NFCC and that the company itself has a stellar record of paying your bills on time.

kirstblan__Guest_: We live in a town with a very good school system but struggle with whether we should send our two children to private school, which we could afford with some changes to our future plans (i.e. husband delays retirement). This would benefit the eldest who is extremely gifted, but not necessarily the other who is bright but not categorically gifted. We figure the future value of a private K-12 education is about $500,000. For that money, I feel it would be better to give each of them a condo after a public high school graduation. Your thoughts, please?

Suze_Orman: Listen, you know this is a decision you have to make on your own. This is not solely a financial decision. This is a decision of what you want and how you want it for your children. And do you care more about your children than your husband's retirement?

TheBigOrman__Guest_: How do I save for college while in college, paying for an apartment and any other college life expense (i.e. alcohol).

Suze_Orman: Oh, go and get a Bud with your friends and figure it out! Seriously speaking, what a waste if you can't afford to do things because you are blowing it on alcohol. Blow your mind, blow your money? Is that what you consider cool? Not in my book.

marko__Guest_: Hi Suze, I have about $2 million in assets, excluding my house. I have 25 percent in stocks and the rest in short-term bonds averaging 6 percent. Can you think of anything I am doing that is not appropriate? I'm 61 years old.

Suze_Orman: You might be better in municipal bonds at 5 percent tax-free rather than taxable bonds at 6 percent. What you care about is not what you earn, it’s how much you get to keep on the interest you earned. You might want to take a look to take some of the $2 million in there. Just make sure they are AAA-rated and insured.

change__Guest_: I have several financial books that are supposedly “for women,” but I still find that the notions they are offering for attaining wealth are not realistic for the common working single woman. Does your book offer any insight on this topic?

Suze_Orman: Yes.

brokeinbelmont__Guest_: How bad is it to take a loan against a 503(b) for medical expenses?

Suze_Orman: First of all its a 403b, not a 503b. And is it a wise thing to do? No. Financially speaking, it makes no sense. However, if it is something you have to do, you just have to do it. If you have another source of money, I'd rather see you take it from there.

Gmoney__Guest_: What should I contribute to my cash value life policy?

Suze_Orman: Nothing. What are you doing? Why do you have a cash value life insurance policy? Unless you have a serious estate tax problem, there is no reason in my opinion to have one. The only type of life insurance one should have for life insurance purposes is term insurance. Get a term insurance policy in place and then drop your cash value policy.

KMR124__Guest_: Hi, Suze. I'm 30 years old and (hopefully) am about to become engaged. My boyfriend and I make a combined $95,000 gross per year. We just bought a home last September. In addition to our mortgage, we have about $20,000 in debt (6% percent APR), which we're currently putting $700 per month toward. I'm wondering how to prioritize where our money goes, given the prospect of a wedding next year that we'll likely need to fund at least partially ourselves. We have little in savings, but I have a 401(k) worth almost $20,000 to which I contribute 1 percent of my salary each year, and my company contributes 12 percent of my salary. Should I cut back on paying off the debt to instead build up a savings? In general, should I be putting less money toward the debt and more into my 401(k), which this past year earned 17 percent?

Suze_Orman: No. Get rid of the debt.

Addie__Guest_: How would you rate the purchase of a variable annuity as a part of one's retirement planning?

Suze_Orman: As the absolutely worst move you can make in your entire life. In a scale of 1 to 10 where 10 is the worst, I would rate it a 1 million. It is stupid, stupid, stupid. Whatever financial advisor is suggesting that to you should be ashamed of themselves.

mojo__Guest_: Hi, Suze. I just turned 45 and bought a new condo recently. My question is in this down market, should I save to buy another property or put my savings into money markets, stocks, etc.? I have about $25,000 left in my savings account after the condo purchase. Thanks so much for all of your sage advice.

Suze_Orman: I would not be buying another piece of property that I would personally not be living in without serious working capital to maintain it in case your tenant moves out and nobody else wants to move in and you can't sell it because there are so many pieces of real estate on the market. Did you know today, we are at the highest vacancy rate, with more than 2 million vacant apartment and homes for sale, we have seen in the last 40 years. You really think now is the time to buy??

brokeinbelmont__Guest_: I have extensive medical bills right now and am a stay-at-home mother. My husband works at a non-profit so his salary is pretty low and fairly unchanged. Is it worth taking out credit cards to pay the bills even if we can't pay them back right now? We have no credit card debt right now or even cards. We have already considered borrowing from his retirement but that won't cover it. Thoughts?

Suze_Orman: The answer to this problem is either your husband gets an additional job if you yourself are unable to work because of medical problems, or your husband leaves where he is working and gets a job that pays him more. Your suggestions of how to fix this problem will only leave your money in need of medical attention as well.

Pat__Guest_: Suze, I am 53 years old, single and own a townhouse with a 15-year mortgage at 5.5 percent and 10 years to pay it off. The job market has turned against me again and I am unemployed. Should I try to sell the townhouse? I don't know when I'll get the next job paying a salary to support the mortgage payments. I have credit card debt from previous unemployment. And, I don't have enough saved for retirement.

Suze_Orman: Yes.

mom2dagny__Guest_: I have about $122,000 in mortgage debt, my only debt, on a house valued at about $800,000 with a mortgage payment of $1,600. I'm not able to save much more than my maximum 401(k) contribution and about $12,000 per year in company stock on my husband’s salary. We are in our early 40s. Would you see a benefit in paying off the house and saving more aggressively for college (we have three kids – one 7-year-old and two 3-year-olds) and retirement?

Suze_Orman: No, I would that see as a benefit for you, to save simply more for yourself and telling your children that they are going to have to pay for their schooling themselves. If it doesn't make you a bad parent, it makes you an honest one, one that will hopefully give their children a lesson on money that they can obviously take care of themselves.

mojo__Guest_: Suze, do you have any seminars planned in the Boston area soon or book promos/Discussions coming up in our area?

Suze_Orman: Go to a search engine, type in "Suze Orman" and you can find my schedule. But I do think I will be in Boston June 15th for an Ebay conference. And I was just there a week ago.

marcel__Guest_: I'm single, 33, and have about $40,000 in credit card debt with no savings, but I do have a 401(k) plan that I currently invest 5 percent in. I make about $100,000 per year and can't seem to get my credit card debt lowered. I want to buy a home but my debt is in the way. Any suggestions?

Suze_Orman: You really have to think about what is going on in your life that you are making $100,000 a year yet have $40,000 in credit card debt. It’s like you really have to get an understanding of this as something is radically wrong. You are not to take the money from your retirement account, because that will be protected in a bankruptcy and if you keep up this kind of behavior, that is exactly where you are heading, I'm sorry to say. I urge you to go to the library and read my book. You are not to buy it, because you can not afford it. And I don't want one of my books adding to your credit card debt. But I do want the wisdom in it to help you get out of it. You can do this, but you have to want to.

Cricketmary__Guest_: What are the positives and negatives of reverse mortgages?

Suze_Orman: Positive is that when you are living in a home, after the age of 62, and you want to stay in that home but you do not have the money to do so. As long as your home is paid off in full, you will be able to be paid to stay here. The negative is that reverse mortgaes come with extremely high fees to take one out and you really need to know, like in any mortgage, the ins and outs of that particular mortgage that you are about to sign your name to. Please do your homework before you say 'I do.'

Eb__Guest_: I'm 34 and inheriting $25,000 from my grandmother. What should I do with it? I'm a married full-time student with one child, in need of a new kitchen and bath but have no retirement. Suze_Orman: Keep this money in your individual name. Do not merge it with anyone else's name, and act like you never got it. If invested properly, that $25,000 will turn into $50,000, possibly $100,000 or $200,000 by the time you turn the age your grandmother likey was. Then she has given you a true gift that has grown and flourished. As far as your kitchen and the remodel, you can do that, but not with your grandmother's money. Treat this gift with all the hard years of labor and love that she put into it to leave to you.

ccbmom__Guest_: Due to late payment, husband was hit with very high credit card interest rates. All payments were made for a year and it's now at 16 percent. Would you ask for a lower rate or is this the best he can do?

Suze_Orman: I would check my FICO score. If above 760, you can do a balance transfer to a 0 percent interest rate card. Everything is dependent on your FICO score. If it is low, such as around the low 500s, you are stuck in this situation. That is why I always want you to have a high FICO score and watch your credit cards closely. Thanks very much for your questions. Be sure to watch the Suze Orman show every Saturday night at CNBC and read my column on Yahoo! Money Matters.