Some guidance on choices when financial crunch hits
Published: June 30, 2009
WASHINGTON Over the years, I've found that people end up in financial trouble not just because they don't have enough money. It's because of poor decision-making.
Q: I am separated, with two young sons, and my husband lost his job about five months ago. I am solely supporting myself and my children and finding it difficult to cover all our expenses. I have stopped dining out, bring my lunch, don't have cable etc., but my income just doesn't cover the monthly bills. I think I have to cut back my Thrift Savings Plan contribution to 5 percent or possibly less. I currently contribute 10 percent. Because there really isn't any other thing I can do to cut expenses, do you agree about reducing my retirement contribution?
A: I do agree. I would cut out your contributions completely for now.
Although I'm a huge advocate for saving for retirement, you need the money right now so that you don't go down financially. Even when there is a match, I would say to cut back on investing for retirement until you can figure out how to make your income match your expenses. For example, can you move to cut housing costs? Can you get a roommate? I know people don't like to do that with kids, but at least explore the option, perhaps with a close friend or relative.
Also have you really explored everything to keep your marriage together? Even without a job, having your husband help at this point could allow one or both of you to get a part-time job. Just asking.
Q: We're in a position to refinance at a lower interest rate, and we need a new roof. You usually advise against treating your equity like an ATM, but what about needed repairs? My husband and I are journalists, so our jobs are on the line with the awful economy.
A: Find out how much it costs to really fix the roof and whether not fixing it will create major damage. If you must, and you are unsure about your job situation, I agree I wouldn't deplete the savings. So in this case, if you absolutely need the roof repair, pulling that money -- and that money alone -- out of the house equity during the refinance would be acceptable. However, first try your best to find another way to pay cash to fix the roof.
Q: I have a friend who lives in D.C. who really wants to buy a house in Maryland to move her children to a better school district. She makes at least $45,000 a year and has credit scores between 500 and 700. She has some debt and does not have money for a down payment.I have suggested that my friend rent in Maryland until she is ready to buy.
A: Your friend is not ready to buy a home and would probably have trouble doing so anyway with the tougher lending standards. So you are right. She should rent and build up her emergency savings, pay off the debt and get her low credit scores up.
Q: Why did you say student loans are not good? As long as you're paying them back, what's the deal?
A: The deal is, it is debt.
Debt (equals) bondage.
Lose a job, get sick, etc., and no loan looks good at that point.
Michelle Singletary welcomes comments and column ideas but cannot offer specific personal financial advice. Readers can write to her c/o The Washington Post, 1150 15th St. NW, Washington, DC 20071, or e-mail her at
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