Money Coach with HLN’s Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!
We’re looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week’s question comes from Tasha Alexander of Columbus, Georgia.

HLN Money Expert Clark Howard.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

KIM:
I have student loans, a Stafford subsidized and Stafford unsubsidized, that were consolidated to lock in a low interest rate. I have heard that after either working for the government or in law enforcement for 10 years you can ask to have your loans forgiven. I work for my state's government and am considered law enforcement. It will be 10 years in November. My loans are current. In fact I pay more than the minimum payment very month. Can I ask for my student loans to be forgiven if they have been consolidated?

CLARK:
Okay, here's the story. Under the income based repayment plan you are eligible for forgiveness of the remainder of your student loans after 10 years of payments if you're working for a non-profit or for government, or 25 years if you work in the traditional private sector. But you have to go in to the income based repayment plan first for the clock to start ticking. Believe it or not the years you've already been paying don't count toward the 10 years so get yourself converted to income based repayment and get that clock running.

Money Coach with HLN’s Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!

We’re looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard. This week’s question comes from William Hickey of Arlington, Virginia.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

KRIS:

I've fallen into severe debt and am trying to cash out my 401k to satisfy my debts. When I told my investment company I wanted to do so, they told me that since I'm still repaying a loan from my 401k, I can't cash it out. When I asked if I could use the available funds to satisfy the existing loan and have the remainder cashed out and sent to me, they balked. Is there any recourse I have and what steps do I need to take in order to have the funds ASAP?

CLARK:

Well first, everybody's telling you can't do this and I'm telling you not to do it, even if they say you can.

You don't solve a problem by wiping out your retirement funds to deal with the debt.

The real thing that eats you up with that is the tax burden.

A typical person who does a withdrawal from a 401k pays, with taxes and penalties, 40% of that amount of money in taxes.

So if you take out $10,000 you actually only have $6,000 that you can use for debt, you're going to have to have that other $4,000 to pay tax next April.

Instead, attack debt one step at a time.

If you need help negotiating, you need help working out a plan, go to your NFCC affiliate, check them out at nfcc.org, that's the National Foundation for Credit Counseling.

Money Coach with HLN’s Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!

We’re looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week’s question comes from Sarah and Ben Perkins of Decatur, Georgia.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

SALLY:

My husband and I are expecting our first child later this year. We are both in our early 40s now, so we'll be 60 before our son goes to college. Would it be better to save in a 529 plan now, or save more in our current retirement plans which may have better tax consequences when we are retirement age and using the money for his education?

CLARK:

That is a very interesting question.

If you were to put money in a Roth account or instead put money in a 529 account - a 529 is used for college, tax-free, a Roth can be used for any purpose once you reach retirement age, tax-free – you do the Roth.

The reason you do the Roth is that if your child ends up getting a scholarship or, heaven forbid, ends up not going to college, the money in the 529 becomes taxable and is subject to penalty.

The Roth can be used for any purpose.

That's why it's a much higher priority to save the max each of you can in a Roth before you would do one penny in a 529.

Money Coach with HLN’s Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!

We’re looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week’s question comes from Ken and Lisa Storey of Winterville, Georgia.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

NISHITA:

My husband's work offers a Roth 401k and a traditional 401k, but we can only choose one. Which one is best? The company matches the traditional but not the Roth. Are there other investments that we can do, because we're not qualified for a Roth IRA due to income.

CLARK:

I think there may be a misunderstanding in how the company has communicated this.

What happens with a Roth 401k is the company would match it just as they would a regular 401k, but the match goes into the pre-tax side of the 401k rather than the after-tax Roth portion of the 401k.

Unless there's some kind of odd exception that the company's not doing that, you would go in to the regular 401k.

Otherwise, I want you in the Roth 401k because tax rates are very likely headed higher over the next generation and you want to have the tax bill already paid as you would have with the Roth 401k.

Plus, you'll love this: you're effectively saving about 30% more in your retirement account if you max out a Roth 401k vs. maxing out a regular 401k, because with one you're putting in pre-tax dollars, the other you're putting after-tax dollars.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

HLN Money Expert Clark Howard takes your questions.

CARLA:
We have flood damage to our home. We have no flood insurance. Both my husband and I have major health problems and can't afford a loan. Would it be advisable to take out the cash value from a life insurance policy we have to make the repairs we need?

CLARK:
Borrowing from the life insurance policy would be a viable option after the fact, not up front. If it were me, I would take advantage of the SBA loans that are being granted in disaster areas that carry ultra-low interest rates. Plus, if your county has been declared a disaster area, there may even be some grant money that will be available to you. You want to get an appointment with a FEMA inspector and they’ll write up a report and see what eligibility you have. If you take out an SBA loan and you find that even making the payments on it – because they’re ultra-low interest loans – are too burdensome for you, at that point, yes, you could borrow from a life insurance policy.

Consumer Reports surveyed more than 1,000 consumers and found they learned big lessons from the Great Recession this year and vowed to permanently scale back their spending.

A whopping 71 percent of Americans purchased only what they absolutely needed this year, 53 percent used credit cards less and 39 percent said they put more money into savings.

Consumer Reports calls this "intelligent thrift." They say it is replacing credit-driven spending and this new fiscal conservatism will last once the recession is long gone.

Survey after survey show Americans are scarred and scared after two years of recession. Even when it ends, it is bound to lurk in our spending psyche, much as the Great Depression was never far from our grandparents' and great grandparents' minds. It's the way boom and bust cycles work, and it's a necessary response to a generation of profligate spending with other people's money.

And that's what it was - spending with OTHER PEOPLE'S money. Middle class living standards of the last 20 years turn out to be a mirage. Now that the jobs are disappearing and the home values have plummeted, the picture is getting clearer. There is no doubt that American families are just beginning to feel the changes that are coming as the middle class undergoes these wrenching changes.

And the upheaval is sparking some interesting trends. As the banks reel in the bubble of credit they offered with abandon (who could open the mailbox without getting a credit card offer?!) it's making credit card customers very angry.

The very banks that were bailed out by the taxpayer are now jacking up interest rates for good-paying customers, denying credit, and slapping overdraft charges on debt cards. But is it right to refuse to pay your credit card balance because you think the bailed out bank that issued it is unfairly raising your rates?

Ann Minch went viral on YouTube with her September 8 rant against Bank of America. She said she was staging a debtor's revolt because her interest rate on a $5,900 credit card balance was raised from 12.99 percent to 30 percent. Her rant resonated and was viewed more than 350,000 times. Bank of America relented and lowered her rate, but there is more here. She may have been late with a couple payments. There was nothing illegal about the bank's raising her rate. And she could have paid off the balance at the old rate and closed the account.

We want to know what you think about credit card fees, the "intelligent thrift" consumer, and whether it’s wise for consumers to take matters in their own hands and refuse to pay their bills.

Call or email us with any questions about your money, and your thoughts on how the Great Recession has changed your life. Call 877-266-4189.