Dipping into the mailbag today, I wanted to address some questions that seem pressing on many minds: sinking IRAs, too much debt and love and debt. A New England edition:
Carolyn in Massachusetts asks:
I’m 20 years old and in January I put $2500 in a Roth IRA account. I know that with investing, you lose money along the way, but with the economy the way it is right now and the small amount of money in the account, would it be better to withdraw it and put it in a high-yield savings account until the economy takes an upturn and then put it back in the IRA?
It’s tempting to pull out of investments when you see your values shrinking but the great news for you Carolyn—and anyone else ready to pull the plug—is twofold: If you’re 20 years or more from retirement, you’ve got dollar-cost averaging and the overall growth of the market over time on your side. And second, consider yourself buying at discount right now—the long-time motto is: Buy low, sell high. And that’s exactly what you’re doing if you’re regularly (every month or twice a month) contributing to an IRA. Dollar-cost averaging refers to the exponential ability of money invested over time to grow like crazy—especially the more time there is before withdrawing. In your case, you’re way ahead of many folks your age and you should still keep socking away in that Roth. BUT please make sure that high-interest debt is out of the picture (credit cards) and check into your distribution on the account. Make sure you’re diversified and not too loaded in one sector, like only tech or only ‘growth’, etc.
Renee in Maine writes:
I am drowning under $80K in credit card debt. I am paying all of my bills on time and my mortgage too. But I am getting to the point where I can’t lower any of the balances. My husband is also taking a new job which pays $20K less a year. I know I won’t be able to keep afloat then. Do I file for bankruptcy or call my credit cards and make a deal before I do? My 2 cars are paid off and I have no problem with my mortgage. HELP!
Renee—There are so many people in your position right now. But don’t look to bankruptcy yet. For you or anyone having trouble juggling debt on a limited or lower income, head to the National Federation For Credit Counseling to find a non-profit credit counselor who can sit with you and give you your personal options as well as—only if you need it—negotiate with your lenders and pull together a more manageable monthly payment plan. You’re in great shape in that you’re on top of your mortgage and don’t have car payments. Surely you have room to negotiate and make things better. Good luck! Keep me posted.
Kenya in Connecticut feels overwhelmed:
I am not sure where to begin. I am almost 40, and have HORRIBLE credit. I want to be able to move into the next phase of my life feeling good about myself financially. I feel ashamed and have a wonderful guy who wants to marry me but I cannot accept his marriage proposal b/c of my horrible credit AND I also owe back taxes…… I am feeling extremely overwhelmed, frustrated, ashamed and lost……. what to do? where do I begin? Is my situation hopeless?
Kenya—Do not feel ashamed. And if you do, use it to only move yourself forward. Like I told Renee, above, head to the NFCC for a non-profit credit counselor. They will also be able to give you personal advice about your tax situation. But know that when you get married, your credit remains your credit. The only way you’ll affect your new spouse is if you’re buying something together like a home. In that case, your low credit score and history will bring his down but his good history and score (I’m assuming) will bring yours up. As long as you don’t sign up for any joint credit until yours is straightened out, don’t feel like this is what’s stopping you. Though it’s not a bad thing to want to get your money-life in order before making this move. It’s a good thing so if you do hold off, give yourself a time frame to look forward to. And keep him in the conversation—after all, you’re not only going to be partners in love, but partners in money. Wishing you the best…