If you have questions about your money in today's economy, you're not alone. Here, TODAY personal finance editor Jean Chatzky tackles reader concerns about complicated financial issues:
Q: I've recently had to file bankruptcy after a divorce and I'm thinking about getting a secured credit card. Is one secured credit card better than the other? And is there another way to raise my credit score? — Linda Sue
A: A secured card can be a good way to get back on your feet. Let me just explain what it is. A secured card is a credit card tied to a savings account. You fund that savings account with, generally $300 to $500 and that becomes your line of credit. Every month, you pay your bills out of your checking account — and cash flow — but should you become delinquent, the bank knows it has enough of your money to make good on your debts.
Some are better than others: Keep your eyes peeled for fees. You want to look for a card where there is no application fee, where the annual fee is as low as possible, and where — as long as you pay the card on time for about a year — the card will automatically become a regular, non-secured card, and your deposit will be refunded.
The best ones also pay interest on your deposits, and they report your payments to all three major credit bureaus (you need this information to pass to the bureaus to rebuild your credit). If you're a member of a credit union, you should look there — many of them offer secured cards and either waive or give their members a break on the annual fee. Once you have that card, it's important that you use it — buy at least a couple of things every month and pay them off in full every month. You can find a list of secured cards at CardWeb.com.
Q: My husband is 70-years-old and I am 61-years-old. He is retired with an $850 pension and $1,826 of social security a month. I bring home $1,344 a month. We have a $70,000 home equity loan and a $500 car payment. Other then the home equity, we own the home. Should we consider a reverse mortgage? — Doreen
A: You can certainly run the numbers on a reverse mortgage — you qualify based on your husband's age. (You have to be 62 to qualify). But because you are still both relatively young, you may be disappointed in the size of the payout either lump sum or monthly that a reverse mortgage will produce for you. The way the lender figures it, the more years they will likely have to pay, the smaller your monthly payout will have to be. You mention that the cost of living in your area is high.
I am thinking it may make more sense to try to trade down to a smaller house — one perhaps with fewer stairs — in a neighborhood with lower taxes than to tap the equity in this home. Often, seniors opt for reverse mortgages because they are convinced that their children want the family home and so they will do everything in their power to preserve it. Yet, they haven't even talked to their kids about it and when they do, the kids don't want it. If you trade down now, you have enough equity that you could likely buy something else and put away enough money to ease your mind.
Q: Since federal banks only insure your account up to $125,000 per account, do I have to open five different bank accounts in order to invest this money? — Mary
A: I'm guessing you're just going to be putting that money in a savings or money market account for that time period, as opposed to investing it? If that's the case, your deposit is covered up to $100,000 per account owner by the FDIC. That means if you deposit the money in a joint account, $200,000 of your deposit is insured.
But that still leaves $400,000 without coverage, and that's a problem. So you can either add beneficiaries to those accounts — for example an account in your name with a beneficiary has an additional $100,000 of protection, ditto with your husband. So if you have two children you can cover all of your bases at the same bank. The other thing you can do is move $400,000 of the money to two different institutions. If you do so, make sure you're getting all of the interest you can on that money. We often point people to the website bankrate.com to find the best savings rates in the US.
Q: Recently my husband lost his job of 15 years. He has enrolled in school and in about 6 months his job prospects will be bright. Should I drain the savings, 401(k) and stocks over the next 6 months? Or begin using my equity line of credit cards? — Erin
A: I think there are a lot of people in your husband's situation right now. And frankly, I don't want to see you taking any of the options you presented. So before we talk about draining savings or taking on high interest rate credit card debt (or even lower interest rate home equity loan debt). I will rank them for you in the order they will likely hurt you least but not until you think about taking on a job (or second part time job) yourself, or your husband considers working part time while he is in school. We know that college students have the ability to work 15 hours per week without it impacting their studies. Perhaps your husband can do the same. Or even if you are working full time, perhaps there's some overtime to pick up. If not, then what you do is:
- Cut your budget to bare bones — any non-necessity gets lopped off the list.
- Start using your savings (they're earning you far less than you'd pay for other debts)
- Sell stocks not in retirement accounts — you might take a loss, but it's a tax-write off
- Look into a student loan for your husband (it may be the cheapest source of financing available)
- Shop around for a home equity line of credit (the likely second cheapest source).
The last resort — so last it isn't even on the list — is pulling the money out of your 401(k). You could pay taxes and penalties that could cost you 30 to 40 cents on the dollar.
Q: I wanted to consolidate my unconsolidated last year's Parent Plus Loan with my previously consolidated Parent Plus Loan, taking advantage of the lower interest rate. When I called Sallie Mae to do so, I was surprised to be informed that they have stopped consolidating loans. Can you provide me with more information about this and whether I have any other recourse? – Cherry
A: Sallie Mae did, in fact, step out of the loan consolidation business, as did many other lenders. Because of the credit crunch and budget cuts by Congress earlier this year, it's simply just not as profitable as it once was. But that doesn't mean you're without options - you can consolidate with any lender, not just Sallie Mae. One of the best places to consolidate these days is through the U.S. Department of Education at loanconsolidation.ed.gov. Also, speak to a financial aid counselor at your child's school for more leads.
Jean Chatzky is an editor-at-large at Money Magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s TODAY Show and is also a columnist for Life Magazine. She is the author of four books, including 2004’s “Pay it Down! From Debt to Wealth on $10 a Day” (Portfolio). To find out more, visit her Web site, .