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Help on loans, budgets, investments, more

This week, TODAY financial editor Jean Chatzky tackles reader questions about consolidating student loans, selling a home, budgeting with an irregular paycheck and more.
/ Source: TODAY contributor

Q: Should I pull out my money from my employer's 401(k) retirement account now? I want to retire in four years. I am over 59, and will put the money in a money market paying 5.53 percent at my credit union. — Phyllis, Calif.

A: If you don't need the money for daily living, then no, don't pull it out of your 401(k), where it is protected and can grow tax deferred. What I think you are saying is that you want to move the money to a safe place — there is a lot of confusion over this. People think that a 401(k) or an IRA is synonymous with stocks, but it's just the basket for your contributions — you can invest the money any way you like. At your age, you should only have about 40 percent of the money in stocks. The rest can be in safer places, and you can move it to the money market option within your 401(k).

Q: My son just graduated with his master's and now owes tens of thousands of dollars in government student loans. Should he consolidate these loans? If so, should he consolidate by loan type? Or should he just lump them all together? — Donna, Del.

A: Donna, whether your son should consolidate has to do with the type of loan that he actually has. Federal Stafford and PLUS loans borrowed before July 1, 2006, are variable rate, meaning that the interest rates reset each year. Loans borrowed after July 1, 2006, are fixed-rate. The interest rates on those don't change.

The benefit of consolidating federal loans is that you can lock in the interest rates on those variable rate loans, and right now, interest rates are very, very low. So if your son's loans are variable, he'll probably save some money by consolidating and locking in today's rates. Lumping them together also makes things a bit easier on the administrative front, because he can pay one bill each month and be done with it. Many lenders have ducked out of the federal loan consolidation market, so the best place to consolidate is the Federal Direct Loan Consolidation program at One thing to note: Private student loans can't be consolidated with federal loans.

Q: My husband is in the military and we have had to put our house on the market. Now we are paying rent and making our mortgage payments. We are living on credit cards and it feels like our financial noose is getting tighter each month that we haven't sold our house. It has been on the market for six months now and we don't know what to do.

It is only three years old and perfect for a first-time buyer or someone looking to downsize but it is not receiving any interest from buyers or renters. Our realtor recently told us that even lowering the asking price won't help in this market. Originally we just wanted to cover our mortgage, but now we just want to get rid of it for a price that won't add to our financial burden. Is there anything we can do? — Amanda, Va.

A: I'm inclined to disagree with your realtor on this, because I think that people are looking for deals now and if you can lower the price a bit or even throw in a few extras — closing costs, a new appliance, etc. — you might get a bite. But real estate is one of those things that really varies by city, town, and even neighborhood, so be sure you've done the research to make sure that the home is priced right for your area. You can do that easily by driving around looking at For Sale signs and even attending a few open houses. Too often, people overprice their homes because they hold a lot of value for them — but unfortunately, at least some of that value tends to be sentimental and doesn't register with potential buyers.

If the price is right, and you've done everything you can to stage the home well, meaning that the grass is mowed, the bushes are trimmed, the inside looks appealing and homey, and you still can't find a buyer, you might want to try renting it out until this market starts to turn around. That would give you some extra income to help cover that mortgage and start paying down those credit card debts.

Q: I am a 48-year-old single mother and my youngest son is now in college. I have no credit card debt, own my car and owe $42,000 on my mortgage. I have a $20,000 CD and an IRA worth about $10,000 and $20,000 in a savings account. Soon I will be inheriting approximately $120,000. Fifty thousand of it is currently in my deceased stepfather's IRA, so I am wondering if I should roll it over. I plan to pay off my mortgage and would like your advice on how to invest the remaining $20- to 30,000. — Kim

A: When you get a big chunk of money at once, particularly from an inheritance that may come with grieving, it's always a good idea to sleep on it for a bit. That way, you won't make any rash, emotional moves that you'll later regret. However, if you're planning to retire anytime soon, I think paying off your mortgage is a great idea.

But you need to also be very conscious of beefing up up your retirement savings. At your age, you don't have as much in retirement assets as I like to see. The remainder of the $100,000 will give you a start on that, but you also need to increase your contributions on an annual basis, which means figuring out where you can get money on a monthly basis to put into those retirement accounts. A Roth is a good start, but you can only contribute the $5,000. See if you can put more into your employer's plan. If not, open a discretionary account that doesn't have the tax advantages — then hands off.

Q: We have a few thousand dollars debt on a credit card and several thousand in the bank. Is it better to pay off the credit card and have no liquid cash? Or should we hang onto the cash? —Teri, Ohio

A: In this market, you have to be careful because banks are cutting credit lines. Normally, I'd say pay off the credit cards and if you have an emergency, put it on your card, but there's no guarantee you'll have that card down the road. So I'd pay off some of the debt, but leave at least $1,000 in the bank in case you need some fast cash.

Q: How do you budget if you are self-employed? We may have an influx of cash one month and then very little the next. I don't know how much to keep in our checking account, just in case we don't make any money the next month. I don't want to stash too much in a low-interest checking account, but I may need access to it quickly. Budgeting is difficult when you don't have a steady paycheck. — Claire, Ohio

A: You're right, Claire, it is difficult to budget if you don't know exactly how much is coming in each month. But it's not impossible. First of all, just because you need accessible cash doesn't mean it has to sit in a low- or no-interest checking account. You can find savings accounts these days with low deposit limits and interest rates in the 3 percent range, and you'll have easy access to your money if you need it in a pinch.

Aside from that, in terms of balancing the months that net bigger paychecks with those that don't, it's all a matter of budgeting. Average out what is coming in over a six-month period, so you know what you earn on a monthly basis, and build a budget that is based on that. Then you can filter the amount of money you need to meet your expenses each month from savings to checking — in other words, you'll be paying yourself a paycheck. The rest stays socked away for the future. That way, when you have a dry month, you'll still see the same amount in income, and you'll have some extra cash to fill in the gaps if absolutely necessary. It will be an emergency fund of sorts, and over time you'll be able to build it into a nice cushion of about six months’ worth of expenses.

Once you have that, you can start saving in other ways, including for your retirement if you're not already doing so.

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, .