ever since i can remember, i've been fascinated by money, making it, saving it, studying it. by the time i was 31, i had earned enough to retire. so i embarked on a new mission, helping you take care of your money. so you can save more, spend less and avoid getting ripped off. >> announcer: now from his radio studio, money expert, clark howard. >> recently, people in several southern states suffered enormous heartbreaking damage from floods. the media coverage has been all about the flooded houses. but you know what else got flooded? people's cars.

we don't even know how many hundreds of thousands of cars are flooded. and just as what happens after any hurricane, a lot of those flooded cars end up being marketed as perfectly clean used cars. and if you buy one of them, you're buying junk. when you buy a used car, it doesn't matter what the salesperson says to you. all that matters is that on the window sticker it says, as is, no warranty. you can't rely upon anybody's words or promises, sadly. if you're going to buy a used car, how good the engine and transmission is, make any deal for the purchase of a used car subject to having it checked out by a mechanic prior to buying it. a lot of places won't let you have it checked out by a mechanic. my question for them? what do they have to hide? protect yourself.

how can i help you protect your wallet? what's your question for me? jim joins us. hi, jim. >> caller: hey, clark. how are you? >> great, thank you. you are in a fix that is high income and high debt. is that a fair statement? >> caller: that's pretty much on the money. >> lay out the background for me, if you could. >> caller: primarily what we're trying to deal with mere is credit card debt. we've got an excessive amount of probably close to $85,000. >> $85,000 in credit card debt versus an annual income of how much? >> caller: probably xwhien combined around 150. >> all right. you know you're above the danger zone. once you cross having 50% of your income in credit card debt, for most people, it's not going

to be -- it's going to be actually a pretty rocky road, getting that 85 down to zero. >> caller: i've been working the numbers and i have come up with a plan that seemed workable. we borrow from ourselves, our 401(k) $50,000. that's the limit which they will allow us to borrow from that. the other part of the scenario is to take $42,000 as a withdrawal. >> let me stoup you right there. based on your income, if you take federal and state tax plus penalties, you're going to lose 40 cents of each dollar of that $42,000. so i'm going to propose a compromise. >> caller: all right. >> let's say the $50,000 loan. you reduce the amount of credit card debt down to 35,000. that 35,000 becomes more manage able for you to you pay against. if you can see yourself paying

off -- if you can come up with realistic numbers where you and your wife could pay off that remaining $35,000 in 36 to 42 months, i would say that's a go. caution, partial green light for doing the loan from the 401(k), i can't believe i just said it. cheryl, you carry no debt in this world at all? >> caller: no. we own both our cars free and clear. we paid off our mortgage a few years ago, and we're well past school loans so we're all set. my question now is we need to do a lot of work to our house. everything had been redone when we moved in 15 years ago and we're looking at a roof and windows and flooring and a kitchen and just a money pit at the moment. and i'm wondering if we can get another first mortgage.

>> if you were to take the cost of the roof, the flooring and the windows and the kitchen, what would you guess that would all add up to? >> caller: 50. >> okay. all right. so if it's $50,000, $50,000 is not an amount that is usually a good amount due on a mortgage because the closing costs involved. >> caller: okay. >> so as an alternative, are you and your husband a member of a credit union yet? >> caller: we could be. i know that there are credit unions we could join. i've looked at that option. >> shop around for a credit union that is known as a five-year home equity loan. they carry extremely low rates from a credit union, and usually extremely low closing costs. >> caller: uh-huh. >> so, that would be the right

loan product for five years because you get the fixed rate and for the right amount. and you get a very small mortgage, you avoid the costs on closing. >> next on clark howard -- >> i think i'm at the point where i should started reducing the amount of risk slowly over each year, i suppose. >> is this one of those hotel ballroom type things? >> after talking to friends about it who have been to something like that, yeah. >> that is your money blowing to smithereens.

frederiki, you have a soon-to-be college child, is that true? >> caller: yes, i do. >> that's a very affordable four years, isn't it? >> caller: yes. and that's why we're looking at different options. we don't have too much to go with, and i'm not sure how this particular company i'm calling you about got our phone number. it's possible that my son signed up something in school. and they called us and set up an appointment for a presentation, to which we went. >> is this one of those hotel ballroom kind of things? >> caller: after talking to some friends about it who had been to something like that, yeah. >> red, alert. red alert. >> that is your money blowing to smithereens. did you go yet, or are you

going? >> caller: no, we went. >> please tell me you did not sign a contract. >> caller: no, we did not. i wanted to find out more about it. and i told them i would like to get more information. >> this is a very, very sleazy underbelly of the college market. the sleazy part is doing the whole hotel ballroom thing about how we know all this secret money. pay us this money, and we'll help you. because what happens is, they don't. they may do the clerical stuff, but it is just an overpriced, glorified clerical service that you would be paying for. now there are some legitimate websites. and i actually have a full list at clarkhoward.com where you can get info legitimately on money that might be available for your child. one in particular i want you to

look at, and you may have already been there, is financialaid.org. have you been there? >> caller: no, i have not. >> a very good clearinghouse site for money that might be available for your child for grants and scholarships. >> do you have a question you'd like me to answer? well, all you do is go to my website. what's that? cnn.com/clarkhoward. and submit a video question to me. and who knows, maybe i'll answer your question, just like i'm doing for will. >> hi, my name is will and i need a money coach. i'm concerned about retirement. i have a 401(k) from my old job that i never rolled over. i have a 401(k) from my current job. i was putting in the maximum, which was right around that irs limit. and then i lowered that amount,

temporarily, in order to pay off my credit card faster. now that the credit card is almost paid off, i'm going to have the money back to do something with. so do i put it back in the 401(k)? or are there other options so i can diversify my retirement? >> will, i know so often i sound like the man from roth. but if it were me, and you're now ready to beef up your savings again, i would look, instead of putting the money into a 401(k), put it into what's known as a roth account. you're allowed to put up to $5,000 a year into a roth, which is a tax-free savings account. you're not going to get the tax deal upfront that you get with a regular ira, but all your money grows tax-free and it's spent tax-free. who should not do a roth? well, will obviously is a real disciplined guy. he took the money that was going towards the 401(k) and then he used it over time methodically to wipe out credit card debt. you should, instead, though do a 401(k) or the equivalent at your

place of work. if you know you lack the discipline to get the money into the account every month. it's not like a 401(k) where they dededuct it from your paycheck and it goes into the plan. with a roth, you're the one who actively has to go through the process of putting the money into the account. >> next on clark howard -- >> it is sometimes difficult to be enthusiastic, especially when you don't have a job. but you have to keep going forward and moving and always keep open to learning new things. >> how much credit card debt are you carrying at this point? >> would it be bad if i told you i really didn't know? >> that would be really bad. >> catch that and a lot more, this sunday at 4:00 p.m. on "clark howard."

let me get you to complete this form right here. and your name and social right here. i need you to give this back to me. >> a lot of people are experiencing unemployment for the first time in their lives. and they don't know exactly how the process works. i'm at a state unemployment office. we're going to hear what people experience when they walk in, plus, what unemployment has been like for them. how are you today? >> all right. let's put your advice to work. >> all right. we're here with elizabeth, who is a real brainiac. you have just completed a degree in -- >> physics. >> physics. >> from emory university, my masters, actually. >> your university where you just got your masters, are there services available to you there to help you network and look for opportunities? >> yes, there are. the career center at emory university is available for two years for any graduate. i came here just to expand my

number of opportunities to look for jobs. >> and you seem pretty energetic and enthusiastic about this. >> it is sometimes difficult to be enthusiastic, especially when you don't have a job, but you have to keep going forward and moving and always keep open to learning new things. >> how long have you been unemployed? >> six months. six months. >> has it been really hard? >> it's been hard. >> how have you been putting food on the table these six months? >> food stamps. >> have you ever been through a time of unemployment that went on for a long time like this? >> never, never. no. this is the first time i ever seen it like this. it's never been like this before -- never. and then there are saying that if you don't have good credit, background checks and stuff like that, you can't work. so there's a lot of obstacles in the way. >> so speaking of that challenge, what do you say to

somebody who is well-educated, never faced unemployment before and it has stretched into month after month, after month of unemployment with seemingly nobody hiring? >> you have to be flexible. look at your skill sets, but also be willing to seek additional training and education. if there are no jobs available, it's a great time to go back to school, to a technical college or a two-year or four-year institution. flexibility is the key, not just looking for the job you lost, but looking for new careers and opportunities as well. >> what about you, bob? what's going on with your job search? >> back in april i was let go of my employer. i had been with them for about 11 years, all total. i had seen the writing on the wall. >> you kind of knew this was coming? >> yeah. >> so knowing that the guillotine might fall on you, had you done things in advance to prepare for that? >> i had done everything i could. i laid out my resumé.

got it updated. started networking with former colleagues. >> so in terms of the clerical side of this, you come in and you do what? >> they have all sorts of different positions in there. if you see something that is suited to you, then you put your name in for it. the website is laid out fairly well. i've actually had quite a few interviews, not been the one they picked, but i'm optimistic. >> i got to tell you how impressed i've been with the people i've talked with who are faced with unemployment. we as a people are far more resilient than really most of us expect to be in this situation. and we're more versatile in what we're going to do next. evelyn is with us. evelyn, how are you? >> caller: i'm fine, clark. how are you? >> wonderful, thank you. you are cutting a deal with a friend or family member, is that right? >> caller: yes, we're in california.

and we have a home to sell. and we have a family member who wants to buy it. and despite the falling housing market, we have a relatively agreed price on it that we're both pretty happy with. and because we've lost so much market value, we're trying to save money and find it difficult to have someone actually sell this. we don't need a real estate agent to list the property. we don't want it on mls. >> if you're selling to a relative, you don't need to do any of that. let's talk about a couple of things. one, if you're selling to a relative, you are held to a higher standard in that the selling price needs to be considered to be an arms-length price. are you giving a real gift to the relative or are you selling it what would be considered by a stranger to be a fair price on your home? >> no, we're not completely giving it away. we've been trying to talk about the process for the whole year. so the price keeps slipping. >> all right. so as far as what i would

normally recommend in this case, when you have an identified buyer, whether it's family friend or stranger, but you're doing your own deal -- is that i recommend that what would be a relatively low cost, that you have a real estate lawyer draw up the paperwork. and that way, you would protect your interest, you would protect the interest of the relative buying the property. everything would be done properly. >> caller: right. actually i called two real estate lawyers to kind of get a sense of that. and they were quoting $250, to $350 an hour. >> how many hours of clock time, were they thinking it would be two hours? >> caller: they couldn't tell me. >> you need to nail that down. because just as in states where real estate lawyers do closings, they will state to you a price for them to do the closing. and it is a fixed price. you should have that same right in california, even though that's not normally the procedure that's followed. next on "clark howard" --

>> you're hiring somebody? >> caller: yes. >> well the big problem you're going to have is once you post almost anywhere, is how are you going to deal with the enormous numbers of applicants you're going to get right now?

ever since i can remember, i've been fascinated by money, making it, saving it, studying it. by the time i was 31, i had earned enough to retire. so i embarked on a new mission, helping you take care of your money so you can save more, spend less and avoid getting ripped off. now from his radio studio, your money expert, clark howard. >> the other day i was in a discount store, and not one, but two people in front of me wrote checks. it seemed like i had not one, but two more birthdays while i waited for their checks to be approved and then it was my turn. well, you know what?

not only is it a pain for me, but it's a pain for the retailer, because they take that check from you. they don't know if it's going to be good. it's almost like they're making you a loan. well, whole foods is now experimenting in a handful of stores with refusing to take checks. that's right. you can pay with cash, debit or credit, period. and you know what? this is actually a good thing for you. because it is turbo dangerous for you to carry a checkbook. did you know that having your checkbook stolen is the worst form of identity theft? because a criminal steals your checkbook, you rush to your bank, you shut down the account. the criminal writes the checks. next thing that happens, the police might be at your door, arresting you for having written bad checks. that's a bad nightmare. so that checkbook? keep it at home and stay out of harm's way. and you won't hold people up in line behind you. and now, let's see what's on your mind.

what questions do you have for me? kevin, you're facing a financial crossrods in your life, aren't you? >> caller: yes. >> what's going on, kevin? >> caller: i'm trying to reach out to the mortgage company, but they're giving us a really hard time. so my question is, if i go into foreclosure, what are the implications in terms of, you know, i'm just responsible for? and do they go after like my savings and stuff like that? how does foreclosure work? >> let's go back a couple of steps. you said that you have reached out to your lender and you're just getting a big blow-off? >> caller: right. they just give me the run-around. i mean, my first option was to sell the house and pay off the remaining balance. >> what you're referring to now is doing a short sale. you're upside-down in your mortgage by how much would you guess, versus what the market would pay for your house?

>> caller: right. >> how much? >> caller: about $50,000. >> versus a house that has a mortgage on it of how much? >> caller: about 270. if i were to sell it in this market, it would probably bring around 220 or 230. >> well that is potentially doable as a short sale. the loss the lender would suffer, allowing you to sell it at market, is so much less than what they would suffer in a foreclosure that it would be a win for them and a win for you if they allowed you to maintain the house, market it successfully and get it sold somewhere in that $220,000 to $230,000 range. >> caller: does a short sale affect your credit? >> short sale affects your credit much less than a foreclosure and much, much less than a bankruptcy. that's why it's much better to be persistent. see if you can work something out and it could be any of the

things. it could be where you work out a modification, where you're able to stay, if that's something you're interested in. it could be that they work with you on doing a short sale. who knows what it is they'll do with you. but i can tell you the one thing they don't want to do is to have to clean up after you have walked away and been foreclosed on. ray is with us. hello, ray. >> caller: hello, clark. thank you for taking my call. >> sure, you want to ask me a question about the conundrum about when you cash in retirement money, versus the tax rates you have to pay on it. >> caller: yes, clark, i've heard you say a couple of times about that you expect the tax rates to go up, and i agree with you. i think it's almost a certainty that that will happen. i'm wondering, would it be better to cash in my retirement accounts and pay the penalty or -- >> oh, no way, no way.

because the loss of sheltering the money over the years -- this is money that you have in iras? >> caller: yes. >> in the ira, there is a long-term benefit to allowing the money to grow, sheltered from tax. there is, though, a very exotic way for to you do something halfway in between what you're thinking of doing and what i just said. are you ready? there's something known as the actuarial method of withdrawal that allows you an exemption from the tax penalty. and you take money out year by year from your ira penalty-free, but you pay the tax. so you would have money that you can then invest in a taxable account however you want. spend as you wish, whatever. but you're never subject to penalty, as long as you do the

actuarial method properly each year. it would be a method of hedging. because you take some of your money and you'd move it over. or another alternative is you know next year, if you can afford to pay the tax next year, you are allowed to migrate all of your ira money, regardless of income, into a roth account. pay the tax, but no penalty. and then that money will never be taxed again. as i think of the alternatives, that would be the best thing of all, is just wait until the calendar turns to 2010. and then make that switch and you don't have any tax problems to consider. next on "clark howard" -- >> my financial situation is i've managed to save some money and put some money away in the bank, but it's just sitting there. >> caller: i can't bring myself to buy a new car.

>> you said the word lease. >> caller: is that a -- >> oh. it makes me choke!

we're speaking now with j.t. hello, j.t. how are you? >> caller: i'm well, sir. how are you? >> great, thank you. you're thinking of getting a car? >> caller: yes, sir. i am in the market for a car and my question is, i'm all about margins and i wanted to see what's going to be more cost-effective? lease a car or to get a used car? i just couldn't -- i can't bring myself to buy a new car. >> you said the word lease.

>> caller: is that a -- >> oh, it makes me choke! don't say the word lease in my presence, because i start having heart palpitations and have trouble breathing. i can't speak a clear sentence. leasing is poison to your pocketbook. >> caller: okay. >> it is really, really awful. compared -- buying a new car versus leasing a new car, almost 100% of the time, you're better off buying than you are leasing. the sweet spot in the market is buying a two, three or four-year-old used car that somebody may have been a return from a lease or it could have been a car that nobody liked anymore and somebody didn't like anymore and they got rid of it. that's where the real money is saved. because you know in the first three years of ownership, do you

know typically a car loses from 40%, to 55% of its value in those first three years. >> caller: right. and that's why i can't bring myself to buy a new car. >> but except, you know, if you lease a car, you're the one paying that depreciation in that two or three-year lease. but my real bias is if you find a couple-year-old used car that has 25,000 to 45,000 miles on it, if you can buy one at a huge discount from what a new one would cost, i think from strictly dollars and cent dshs i know there's fun having a new car. but if you look at it just from money, j.t., it's a better deal to buy that used car almost always versus buying the new. it's time for money coach, that's where you get to ask me your money question. right now we're going to visit

with mike, who's got a question for me about how to make his wallet fatter and fatter and fatter. mike? >> caller: hi, my name is mike. i need a money coach. my financial situation is i've managed to save some money and put some money away in the bank. but it's just sitting there. i know it can be more valuable somewhere else. i think it would be a great thing to set up some retirement plan or some 401(k) plan and kind of prepare for my future as well as invest my money into something that i could potentially be very profitable for me. i believe that with some general direction, i can save money, learn to budget my money better. my question is, is what are the different avenues i can take in investing my money to make it profitable? >> all right, mike, first, you need to congratulate yourself on something. you have virtually zero dollars of debt. so often when i'm talking to somebody who is younger, it's so hard to juggle the balls in the

air, do you save for the future, do you pay off debt? because you essentially have no debt, you have the whole marketplace open to you. as far as saving for retirement, especially when you're young, my favorite way for you to do it, is an account called a roth account. a roth is where you can put five grand each year into a tax-free account that earns tax-free for as long as you want to leave the money in there. and you can use it for retirement all the money in the account, plus everything it earns, flows to you free of any income tax whatsoever. a great choice for you. now, the thing is, how do you open one of these things? you can open a roth most anywhere. company, you can do it at the bank. you already have your money sitting in earning like zip. but because you're so young, my goal for you is to put the money either in stocks or my favorite,

index funds, where you own a little tiny slice of hundreds of companies across american capitalism. now, the easiest, easiest answer for you is to go into a target retirement fund with that roth, where you put the money into an account based on your likely year to retire. and then as you get closer and closer to retirement, the money is invested more and more conservatively for you. next on "clark howard" -- >> caller: i have some preexisting medical issues. so there is risk for need of cash for either medical expenditures or even living expenses potentially. so i've got to plan for both, to live to 90 and to plunk it out here soon.

jackie joins us, hello, jackie, how are you? >> caller: i'm fine. how are you? >> great, thank you. >> caller: my question has to do with a potential identity theft with a recently-deceased mother.

>> first, let me tell you i'm sorry that you lost your mom recently. >> caller: well, thank you. i received a letter from a national bank asking me to contact them, because it was very brief. it just said, please contact us immediately if you have applied for a credit card recently. if not, then one has been applied for in this name. because i'm executor for her estate, as well as i had power of attorney before she died, i just open all mail. when i contacted the bank, they said, okay, we'll notify anybody in our bank that this person is deceased and no more applications will be received in that name. but i asked, what should i do? that means that information is out there. it could be used elsewhere. >> right. >> caller: and they didn't really have any real concrete recommendations. >> there is a trick i have.

and that is, what if you, as executrix went on the websites of all three credit bureau sites and froze her credit? because the credit bureaus must not know yet that your mom is deceased, you'll be able to freeze the credit, because you'll have the information. what that would do is that would prevent anybody from attempting to open accounts as if they were your late mom. >> caller: o okay. so i can do that online? >> yes essentially you're impersonating her, but you're legally allowed to, as her executrix. >> how can i be of service? >> caller: i am looking at two issues. i'm trying to secure my retirement at this time. i'm self employed. i have some preexisting medical issues. so there is risk for need of cash for either medical expenditures or even living

expenses, potentially. so i've got to plan for both. to live to 90 and to pluck it out here soon. >> that is a very, very difficult mix. that is a very hard mix. do you have medical problems of a nature that you can end up with medical bills that could potentially bankrupt you? >> caller: i'm self-employed, so i don't have good insurance. yes, it has a cap on it. >> what's the lifetime cap? >> caller: one mill. >> one million dollars sounds like a huge amount of money, but for serious medical conditions, it's not a lot at all. of the $1 million in lifetime cap, how much have you used? >> caller: not significant. a drop. >> all right. so it is a possibility, but a remote one, that you will exhaust your medical benefits? >> caller: yes. >> so that switches the emphasis more to the long-term, socking

money away for the future. and as a self-employed individual, have you been doing a s.e.p. plan? >> caller: no. >> is your business profitable at this point? >> caller: yes. >> so the s.e.p. lets you put in up to $49,000 a year on this formula into a retirement account, which is the best vehicle available to the self-employed. the other thing you can look at is something you may have heard me talk about before, which is a roth account. and a roth works differently than a sep. a sep reduces your current taxable income for your business, but all the money in the sep is ultimately taxed when you spend it in retirement. a roth account works backwards. you can put five grand in it each year, but you get no tax benefit upfront, but all the money in the roth is tax-free at time of retirement.

how about santa coming with his sleigh ultra early and having the thing packed with deals? i already told you that this was going to be the most promotional christmas we could ever remember, promotional is retail-ese for meaning everything is going to be cheap. walmart stores is responding to the competitive threat that toys r us is posing with all its new pop-up stores, temporary retail store that is they're going to offer low, low prices on toys. walmart's response? 100 popular toys -- these are brand name toys -- for 10 bucks. i'll tell you, i would push up your christmas shopping for kids and get it done before october is over, because these toys are so affordable compared to what they would be otherwise, and there are so many people who want to buy for kids for

christm christmas, i would buy early, now! next on "clark howard --" >> that's not going to be an issue. my girlfriend's family lives there. >> free housing? >> caller: yes. >> free? you beat me, didn't you?