Need advice about paying off your debts? TODAY financial editor Jean Chatzky gives answers to the most common consumer debt questions.
Q: I was wondering if my husband's credit score and mine are the same? Everything we own is in both of our names. But is it important for me to establish my own credit score? — Kathy, Chagrin Falls, Ohio
A: You each have your own credit score. It includes joint debts like your mortgage as well as anything you've taken out — historically — on your own in the present. Step one is to pull your credit report and a credit score to see what yours looks like. Go to annualcreditreport.com to pull your credit report from each of the three major credit bureaus for free. You can link from there to purchase a credit score from one or more of the credit bureaus.
As far as getting a credit card in your own name, I do think it's a good idea. As long as you pay it off in a timely fashion, it shouldn't cost you too much. It should also help to make your credit file a little more well-rounded — that's one of the things that your credit score is based upon.
For good lists of credit cards (rewards cards, low rate cards, etc.), go to www.bankrate.com
Q: This fall I will become a full-time college student. My husband's net monthly income is $2,000. But our monthly bills total $3,100, including a second mortgage and a large credit card balance. I have $4,200 in a five-year IRA certificate and my husband has $20,000 in a pension plan. Are student loans the best way to supplement our monthly income while I finish college? And would it be a good idea to sell our home to pay off our debt? — Mikala, Bloomington, Ind.
A: As far as I can tell, you're looking at falling behind an additional $1,100 each month — and that doesn't sound like it counts what it will cost you to go to school full-time. Unless you are getting a full scholarship, that could easily double (if not triple or quadruple) the monthly hole you're digging. If by selling your house you could not only pay off all debts but free up some cash to supplement your income, then I'd consider it. But you also have to ask yourself if it would reduce your cost of living — how much would it cost to a) sell it, b) move and c) rent something else? These are all things you need to think about before you make the final move.
I understand the allure of college — going drastically improves your chances of making a sizable living. But perhaps now is not the time to go full-time, but rather to work part-time and go to school part-time so that you're not taking on the sort of debt that could drag on for years.
Q: I've done a number of parent plus loans and I know I should consolidate them on July 1. Could you explain the process? Should I go through the U.S. Department of Ed, a private lender, or the State Higher Ed Authority. — Justine, Warwick, R.I.
A: If you've got a variable rate loan — and you will if they were taken out before July 1, 2006 (if not, they are fixed at 8.5 percent), you should consolidate. Or at least try. Because this market has tightened up thanks to the credit crunch, this is not as easy as it once was. But you can look at loanconsolidation.ed.gov — the Department of Education's Web site — for leads and either either apply online, do a phone application, or download a paper copy of the application and mail it in.
A PLUS loan, just FYI, can be consolidated just like Stafford and Perkins Loans, although a parent's PLUS loan cannot be consolidated with the student's Stafford and Perkins Loans, since the borrowers are different. But parents who have their own Stafford loans can consolidate them together with any PLUS loans they have borrowed to pay for their children's education.
Consolidating PLUS loans provides access to alternate repayment terms, such as extended repayment, graduated repayment and income contingent repayment.
Q: We rent but are looking to buy a home. We have $120,000 in student loan debt — $1,100 a month already consolidated. We made an offer on a house and we would be looking at $1,450/month. Now, we spend $871/month rent and $260/month on a credit card with $7,700 balance. Can we afford it? — Greg, Cohoes, N.Y.
A: I don't think so. If you could afford it, you would have made additional headway knocking out that credit card debt — and you haven't been able to do that. Doubling your housing cost at a time when you're adding the cost of a baby (we haven't even talked about whether your wife plans to go back to work full-time or part-time) is not — in my mind — a smart idea. I'd work on the credit card debt first, bank some savings, then buy a house.
Q: We are planning to refinish our basement this summer and perhaps roll the last of our remaining credit card debt into the loan or line of credit we will obtain for the construction. We are wondering if it makes sense to do a home equity loan, a home equity line of credit or use a 0 percent credit card offer? — Kristin, Denver, Colo.
A: Before you borrow, you need to be sure that your home still has the equity that you think it has and that a lender is willing to let you take out a HELOC — a home equity line of credit — which is a better option than a home equity loan. Many lenders won't let you go past 85 percent LTV with a HELOC. Some are as low as 60 percent LTV. It's harder to borrow against your home today than it was two years ago.
Since your credit scores are already good, I'd leave the additional debt on the credit card at zero percent since it's free money. It will keep your monthly payment lower — despite the tax deduction — than converting for a HELOC. And you're right about turning an unsecured debt into a secured one — you put your house at additional risk should you not be able to pay your mortgages.
Couldn't get your questions answered here or on-air? To locate the nearest National Foundation for Credit Counseling (NFCC) agency near you, call 800-388-2227, or visit their Web site at debtadvice.org. Additional resources can be found at msnmoney.com.
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, .