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YOUR MONEY

YOUR MONEY Special: Debt Free Forever; How America Became a Debt Nation; Credit Crisis Taken a Toll on the Student Loan Market; Debt and Dating: What You Should Find Out About Your Significant Other's Finances

Aired May 24, 2008 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(BEGIN VIDEOTAPE)
ALI VELSHI, CNN HOST: Thanks.

Coming up on YOUR MONEY, a special hour, debt free forever. From credit cards to home equity loans, we will tell you how America became a debt nation.

Also ahead, the credit crisis has take a toll on the student loan market. But we will explain why it might not be as bad as you think.

And debt and dating, what you should find out about your significant other's finances before things get too serious. All that and more after a quick check of the headlines.

(END VIDEOTAPE)

(NEWSBREAK)

VELSHI: Welcome to YOUR MONEY, where we look at how the news of the week affects your wallet. I'm Ali Velshi.

Today, we've got a special debt free forever. Coming up, from mortgages to car loans to college loans, we will help you figure out what's good debt, what's bad debt, and how you can pay it all off.

Plus, how your shopping past dictates your buying future. We will break down to credit scores and what you can do to raise yours. And your questions on credit and debt, we will answer your e-mails and get you back on the right track.

For American consumers, a 20-year debt spree and a buying binge might be coming to an end. Gas prices, as you know, show no signs of cooling down, and that is sucking billions more directly out of the pockets of American consumers. Americans' homes are no longer their cash machines. In fact, many Americans owe more on the homes than they own, and they have bled them dry of equity.

The rising food prices are putting a strain on family budgets across the country. Our Christine Romans has a closer look.

(BEGIN VIDEOTAPE)

CHRISTINE ROMANS, CNN CORRESPONDENT (voice-over): The party is over. Americans gorged themselves on debt for two decades. They bought ever-bigger houses, and they spent with abandon at Wal-Mart and the mall, just as U.S. trade policy allowed our ports to be flooded with cheap imported goods.

And how did they pay for it? By opening credit cards. Americans hold four cards each on average. And by taking money out of their homes. As home prices rose, Americans borrowed 1.1 trillion dollars in home equity loans. Lenders peddled ever more exotic home financing and the amount of money Americans borrowed from their homes soared more than 1,700 percent over the last decade.

A housing crash means Americans are tapped out at the same time basic costs are rising. Of course for many, it was never really much of a party.

TAMARA DRAUT, DEMOS: I think if you asked the typical American consumer, they would gladly trade the iPhone and iPod for a decent, affordable health care plan, or for cheaper college tuition. We have been sold that the quality of life is so much better because we have all of these great gadgets that are relatively inexpensive.

ROMANS: At the same time, especially in parts of the Midwest, manufacturing jobs have disappeared at an alarming rate.

(on camera): A generation ago, a full time worker could support a middle-class family. Today, it takes two incomes. That's according to government statistics. In the short turn, this down turn means belt tightening for American consumers, but ultimately could mean lower living standards.

Christine Romans, CNN, New York.

(END VIDEOTAPE)

VELSHI: Christine is not with me because she has just added, in the business terminology, a new dependent to her household. Christine is now the proud mother of a second little baby boy. We wish you well and we miss you and come back soon.

From credit cards to mortgages to student loans, as Christine says, we are a nation in debt. But how did we get here? And more importantly, where are we going?

For answers to those question, let's turn to Robert Manning from the Rochester Institute of Technology. Robert, good to see you. Thank you so much for being with us.

How bad is this? What did you call it? A horribly unique situation in American history; is that true?

ROBERT MANNING, ROCHESTER INSTITUTE OF TECHNOLOGY: Well, this is truly a unique situation, Ali. In the last five years, we have literally seen the economic laws of gravity suspended. And by that, I mean in the late '90s real household income was rising and the historic norm and growth of housing prices really retained the stability. But after 2001, housing prices, of course, doubled in most metropolitan areas, where home household income actually declined.

VELSHI: Explain to me why household income declined? I don't talk to most people who say they have had negative wage growth. They have little increases. Maybe they didn't keep up with inflation, but how did that actually happen? Why did the wages decline?

MANNING: Well, what is striking, of course, is that with globalization what we are seeing is more and more outsourcing around the world. And as wages have become stabilize, and we are seeing inflation rising, the overall cost of living, as we saw with housing, took just a huge chunk out of people's paycheck that they had to start turning to other sources of income. And in fact, what we see is that this is really the first time that most households became dependent not just on the earnings of two people, but two incomes plus extraction of equity out of the homes.

VELSHI: Right, that is a big deal.

MANNING: This was unprecedented.

VELSHI: That is a big deal, because in my parent's generation, you didn't touch it. If you went into your home for more equity, it was because you were either buying something else, in terms of another home, or doing some massive renovation that was going to increase the value of your home. The idea that you would tap into your home equity to either spend or pay off credit card bills was unheard of.

What fundamentally changed? Did that money became available to us because the banks said so? Did we do that? How did we become this society that tapped into the homes for credit?

MANNING: It is truly striking because if you look at the growth of consumer debt over the last decade, the greatest growth is mortgage debt, from three trillion ten years ago to over 10 trillion today. A lot of this starts back in 1986 with the Tax Reform Act. Many people forget that all of our consumer debts, the interest was tax deductible until 1990, and that is when the home equity loans became popular.

That's when banks started aggressively marketing to people that they had money tied up in their homes, and it was too to free it up and unleash it. Now, we have seen with deregulation such a tremendous effort to get people to purchase and refinance and take money and put cash in their hands that they are not getting from the paycheck.

VELSHI: We should tell people that that's the good debt. Mortgages and home equity and student loans is the good kind of debt. Credit cards are the bad kind of debt. And now in 2008, we found out that some mortgages are the bad kind of debt. What is the bigger problem, the debt that's in mortgages or the debt that's on credit cards right now? What's the bigger problem facing America?

MANNING: Well, the problem is we haven't reached the floor in terms of housing values. And because so many people have psychological consolidated their bad debt from credit cards into the perception of good debts being their mortgage, they have a false sense of security that they were really handling their household finances. The reality of it is that many people today can't handle their personal finances, simply because the interest rates are rising on the mortgage debts.

VELSHI: Tell me what I can tell our viewers. Tell me what they can do right now. If you are saying it is an uncertain situation, tell me with what we can do if you think it is only going to get worse?

MANNING: I think what is crucial is that we have to start taking a stock about how much debt can a household really afford to pay. As corporate America is now going through workouts and writing off their debts, Americans are going to have to take a look. Is their 500,000 dollar mortgage on a house that's worth 300,000 dollars feasible? What kind of workout, what kind of debt relief can they get on their secured debt?

They are going to have to take a look at their unsecured debt, talk to their lenders and say, you lent me more than I can afford; this is exactly how much I can afford to repay, or I will have to go into a bankruptcy program.

VELSHI: Robert, good advice. To any of you listening out there who find yourself in that situation, call the bank. Call them and have the conversation with them. Robert Manning is the author of "Credit Card Nation."

Coming up next, why not all debt is bad debt. Find out why having some of it can be a good thing. Later on questions on your debt, we will answer your e-mails. Stick around because YOUR MONEY is coming right back.

(COMMERCIAL BREAK)

VELSHI: All right. Mortgage meltdown, credit crunch, whatever you want to call it, debt has become a very, very scary word in this economy to most people. But not all debt is bad debt.

Greg McBride, a good friend of our show, is a senior financial analyst at BankRate.com. He joins us now from West Palm Beach, Florida to explain. BankRate.com, by the way, can be your friend when you are trying to compare rates.

Greg, you know more about rates than anyone else, because you compare everything that is going on. I just had a conversation where I was saying that we used to say that mortgages and student loans were the good kind of debt. Credit card debt is generally the bad kind of debt. Tell me if that is right or wrong?

GREG MCBRIDE, BANKRATE.COM: Well, that is right. But however, even good debt can be taken to an extreme. And we have seen plenty evidence of that just in recent years, buying more home than you can afford, taking on a bigger loan than you can really pay back given your level of earnings. An example of taking that good debt too far, and that good debt can become bad debt if it is unaffordable.

VELSHI: What's the best way? For the people who are watching us who are already in that problem -- we get this mails from people who are sometimes overwhelmed. How do you make decisions as to how you start to get yourself out of debt? Do you take everything you own and make a payoff plan? You pay a little bit more than the minimum on everything? Or do you pay some things off first and leave other things for later? How do you deal with it?

MCBRIDE: Well, the first thing is to make sure you are current on all of your obligations. That is first and foremost. If that is the case, then what you want to do in terms of a debt repayment plan is rank your debt in descending order by interest rate. What this does is this effectively segregate the bad debt, things like credit card, personal loans, auto loans that tend to come at higher interest rates, from good debt that tends to come at lower interest rates and may carry some tax advantages, things like mortgages and student loans.

And then what you want to do is focus on knocking out the higher interest rate debt first, making smaller minimum payments on the other debts. When you get that top one paid off, you move next down on the list, throw all that extra money into that highest rate debt.

That is the way to really turbo charge your debt repayment plan, and you are doing it in a way that is knocking out the bad debt first and not knocking out the good debt while keeping the bad debt. I see people make that mistake a lot. They carry a 3,000 dollar balance on their credit card and yet they're throwing an 100 bucks a month against the mortgage. That just doesn't make sense.

VELSHI: Right, and there used to be a time when you could say, hey, listen, maybe I've got that money and I can invest it and get that investment back. But generally speaking, if you are paying double digits in interest rates, there should be no option there; pay the debt first.

MCBRIDE: Absolutely. That is a risk-free return. If you're carrying credit card debt at 14 percent, that is a risk free 14 percent return.

VELSHI: What about negotiating those rates. What room do people have to call the credit card company or the creditor and say, I know, it's 26 percent. I know I have bad credit. I know I've missed some payments. Does anybody want to negotiate with you anymore?

MCBRIDE: Absolutely. There's plenty of latitude here. You know the old saying, nothing ventured, nothing gained. Pick up the phone, try to negotiate a better deal. It is particularly fruitful if you do have good credit, if you paid your bills on time. However, it is something I recommend for everybody.

Also, interest rates are falling. So this is the environment where, particularly if you have good credit, you can take your business elsewhere. If you are not -- if your issuer is not going to play ball, you can take your business elsewhere and get that rate.

VELSHI: Right. If you are -- if you can show that you will continue to pay your monthly balances, you are actually very valuable to lenders right now, because if they can get their money out of you -- where do you see -- where does somebody find out about how to compare what they are paying to something else? Bottom line is people get those statements and they're shocked by them. What is the best way to figure out what your options are?

MCBRIDE: Well, it pays to cast a wide net and shop around. First, a lot of people -- we open up the mailbox everyday. We get a lot of solicitations. That depends on credit quality. You do need a reality check. You need to calibrate, what is my credit rating versus what offers can I qualify for. Also, go online, shop around, compare local banks in your areas, as well as credit unions. BankRate.com is a free search engine where you can compare rates.

Having done that comparison shopping, you now have the ability to go to your issuer and say, hey, look, I know I can get lower rates elsewhere. I will give you the chance to lower my rate. And if they don't do that, then they may call your bluff. And if that is the case, then you have to be prepared to go out the door and go someplace else.

VELSHI: I have used BankRate.com many times as a source for that sort of information. It's worth going to. Greg, good to talk to you again. Thanks for being with us. Greg McBride from BankRate.com.

Coming up after the break, a tough lesson to learn in the car loan and student loan market. We will point out the red flags that you need to look out for. You are watching YOUR MONEY on CNN. We are coming right back.

(COMMERCIAL BREAK)

VELSHI: Welcome back to our special debt free forever edition of YOUR MONEY. We have talked about good debt versus bad debt. Let's get a specific look at two types of debt that are often unavoidable. As much as we would all love to pay for college or a car with cash, most people don't. Jennifer Westhoven, welcome to the show. Let's talk about cars.

JENNIFER WESTHOVEN, CNN CORRESPONDENT: This is a big purchase. You have to have a lot of money up front. You will be in this thing for years. There is always first the buy and lease question, what are you going to do? One thing I want to make sure you to know is you're going to stay away from those six-or even seven-year car loans that a lot of you are starting to take, that the dealers are dangling in front of you. We're going to have more on that in a moment.

But, if you're looking now, there's this buy or lease question. If you are going to drive the car for a long time, ten years, if you are going to be like me, run it into the ground -- my husband I should say -- that is when you buy the car. Take the loan. You probably do need a 10 percent down payment. But maybe that is the car you can afford right now.

But if you are like, Pete, the floor director here, if you love that new car smell, if you want a new car every few years, that is when you want to lease, because the minute you drive that car off of the lot, it is worth thousands of dollars less. It is not a good investment if you are going to be selling it soon. You don't need a big down payment in that way.

VELSHI: Yes, some cars still want that big down payment, but if you're going to keep trading it in, then you don't want to waste it and putting that down payment in. But you're never going to own a car in that case.

WESTHOVEN: That's true. Right now, car dealers know and they are desperate. March sales were down 12 percent. They have to sell these things. They know that you're in trouble, so they have come up with this idea for people in tight budgets, these six and seven-year loans, as a way to get you into the most expensive car. They sound so good. They are clearly bewitching people, because one in six new buyers are getting them.

That really surprised to me, because I think you hear it is a siren song, right? You get the car of your dreams. You look at the monthly payment, you go, I can afford that. But this, I can -- this is not responsible. All of the consumer experts say you want to stay away from these loans. Anything goes wrong with the car, an accident or something, the car could be gone, you are stuck paying for it, anyway, for years. And then even if it drives wonderfully, let's say everything goes great, perfect scenario here, the interest rate on this is huge.

So I did -- let's say a five-year loan is your typical car loan. You buy a 20,000 dollar car. The interest is about 2,500 dollars extra on top of the price. You put this into a six-year loan; the interest becomes 4,300 dollars.

VELSHI: Big difference.

WESTHOVEN: That is 1,800 dollars. What could you have done with 1,800 dollars? The bottom line is if you think that you're going to need a six-year car loan or seven-year loan to buy that car, you can't afford that car. Like, I am sorry to be the one to tell you, but you have to look in the mirror and go, what can I afford.

VELSHI: Good advice. Don't get yourself into bind you can't get deal with. Jennifer Westhoven, thank you so much.

Car loans are one issue. The credit crunch is hitting the student loan market as well. While lawmakers introduce legislation to increase federal loans, private lending for student loans is shrinking.

Kitty Pilgrim reports.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Cindy Printhouse, a senior in high school, is learning about federal loans for college. Because she doesn't qualify for private loans, she will need to rely exclusively on federal loans. Federal loans, which top out at 23,000 dollars for four years, don't cover tuition at many public colleges. And private college tuitions are simply out of the question for most students who have to rely exclusively on federal loans.

RICHARD VEDDER, THE CTR FOR COLLEGE AFFORDABILITY: College costs have been going up seven or eight percent a year, and student loan payments have not been -- from the federal government have not been going up quite so fast. So kids are having to resort more and more to private lending.

PILGRIM: But private lending is tightening up, partly because of the tightening credit market, partly because the once secure student customer has become a delinquency risk.

Lenders like CIT group have recently stopped offering student loans. And Teri, a non-profit that guarantees private student loans, has filed for bankruptcy. The CEO says students are facing tighter credit standards.

WILLIS HULINGS, THE EDUCATION RESOURCES INSTITUTE: A lot of the borrowing that is going to be approved is for people who have very high levels of credit. There may be some people who are not going to get approved this year who would have been approved before. Additionally, there's going to be some people who don't get enough money, or the rates that they do pay will be higher.

PILGRIM: Student loans have a default rate of four to five percent within the first two years after graduation. But that default rate often doubles a few years after that time, as students fail to find and keep jobs.

Kitty Pilgrim, CNN.

(END VIDEOTAPE)

VELSHI: For more on the college loan crunch and what other options are out there for students and parents, I am joined by Seppy Basili. He's the senior vice president at Kaplan. He's the author of several books. His most recent title is "Paying for College, Lowering the Cost of Higher Education."

Seppy, thanks for being with us.

We have been hearing -- if one is not sort of following this on a daily basis, the impression I have is that college loan money is substantially harder to come by than it was last year.

SEPPY BASILI, SENIOR VICE PRESIDENT, KAPLAN: The short answer is that is not going to be the case. I think it is really important to get that message out. There were a few changes this past fall in the way Congress and the way that the federal government subsidizes loans. That has forced -- not forced -- some lenders have now chosen to not participate in those programs. But the federally guaranteed loans, the Stafford loans, the Plus loans, will still be available. You just may have less lenders to choose from.

VELSHI: What does that mean when you say less lenders to choose from? Does that mean the money will be more, will there be more interest to get those loans? BASILI: For the federally subsidized loans, they really can't be. Where it gets a little tricky is what is known as private loans. These are loans that are privately fund and where you may see an increased cost with those are around things like an origination fee, and the cost of obtaining that financing. But for the purpose of the federal program, it is all well established, so there really shouldn't be any major affects.

VELSHI: What about the credit needs that you have to have? Is it like the mortgage industry, where your credit has to be better in order to secure the loans?

BASILI: Certainly that is the case for private loans. One of the things that you can do that if you know that you have students coming to college, now is a great time to get your financial house in order, because it can make a real difference.

VELSHI: All right. Steps to be taken right now? People are getting their admissions; what should you do, because really we report so much on the increase in the fees for students, and tuition and costs of going to college. There must be some people looking at this thing, I will never make this work.

BASILI: The first thing to do is to work with your college financial aid office. This is one of the biggest mistakes people make. If a college is interested in you, they are happy to discuss your financial situation. They can often point you to loans and other kinds of grants that you may not be aware of. So even if your son or daughter is planning to apply or start next fall, you should be working with the college financial aid office on your package.

VELSHI: Something people may not know is that it's entirely legal to have somebody co-sign your student loans, somebody not your parents.

BASILI: It is. That's one of the things. F you are in a real bind, you can have an aunt or uncle, a family friend, a grandparent. Co-signing is a absolutely available and it's a terrific way to make sure you get that student loans.

VELSHI: One of the things we have talked about in the past is that the abundance of scholarships and bursars and things that are out there that people don't even know about. Is there still good money to be had?

BASILI: There is. One of the things you can do even right up to the last minute is apply for a plethora of college scholarships. There are plenty that are due now this month and next month. There are a number of Web sites that you can go to. One key point, though, never pay for scholarship information. That should be free. And there are occasionally services that try to charge you. Don't do it.

VELSHI: We are hearing from a lot of people who, for various reasons, because they can't access money from their house, are dipping into their 401(k)s for credit and living expenses, even for something as legitimate as a college expense. Your advice is do not go into the retirement money to pay for college.

BASILI: No one will give you a loan to fund your retirement. There are lots of ways to get funding for college. And you should exhaust every other possibility. The same is true for home equity. And that is again something that I think a lot of parents who were feeling sort of cash rich in their homes had been planning to use the money out of their homes. It is really not a good idea.

VELSHI: Work hard to get that college loan, and if it ends up being loans, that is fine, because your kid has time to pay it off.

BASILI: Absolutely, plenty of time. And the track record on those loans, kids do pay them off. It is one of the most successful programs from a lending perspective.

VELSHI: Back when I was in college, it was quite fashionable to take extra time to get through college. At the cost of college comes in at these days, there are many ways to accelerate your way through college, taking extra courses. Sometimes, it's a lot cheaper if you can avoid an extra year.

BASILI: It is, and this is something that I really encourage families to talk about. A lot of the state colleges really let you credit load. They will let you take an extra course or two in a particular semester in order to get out more quickly. Here is the other real secret, it is AP courses. We have two million Americans taking AP tests every year. Those credits can help you get through college more quickly. And it can really help you get out in four years, and in some cases as quickly as three or three and a half.

VELSHI: Good advice, Seppy. Thank you so much for being with us. Seppy Basili, a senior vice president at Kaplan.

Coming up, find out what goes into the magic number that is your credit score and how you can start raising that number right now. You are watching YOUR MONEY on CNN.

(COMMERCIAL BREAK)

(NEWSBREAK)

VELSHI: Hi, welcome back to a special edition of YOUR MONEY, debt free forever.

It affects every aspect of your financial life, but for most Americans, your credit score remains a mystery. How is the credit score determined? What steps can you take right now to improve it?

For that, we turn to Ed Mierzwinski. He's a consumer program director at the U.S. Public Interest Research Institute. Ed, good to see you again. Thank you for being with us.

It is a number that goes up to 850 or something like that. And we have all got that number. I found some people who are very, very surprised when they go for first time to check their credit score, and in many cases, lower than what people expect. They think they have excellent credit, and the number doesn't indicate that. Tell me about the credit score.

ED MIERZWINSKI, US PUBLIC INTEREST RESEARCH GROUP: Well, the credit score is sometimes guarded like the Coca-Cola formula by the Fico company, but it is really simple. It is largely based on your credit report. Your credit report has how you pay the bills. But if your bills are mixed up, if there are mistakes, if there are identity theft accounts; there are all kinds of reasons your credit score can be wrong. There are a few other things that you can do to fix it.

VELSHI: First of all, everybody is entitled to their credit report at least once a year, and we will tell you how to get that, how you can go to the web or sign up and get your credit report. You get your credit score at the same time. But if you don't like what you see, first thing you say is that people should read the credit report -- the score and the report are two different things, right? And the report has a fairly detailed history of your credit.

MIERZWINSKI: The report is like a resume. The score is just one number. The report is free by law. You might have to pay five or ten dollars to a credit bureau to get your score. There are some places you can get them for free on the Internet separately from the credit bureaus however.

VELSHI: One of things that I think is interesting that you have said is that you should look for mistakes. A lot of people find out there's a mistake or an account that is shown to be open. A lot of people say, you know what, this thing says I have a loan for 10,000 dollars for a car. I don't have it, but it looks like it is being paid the whole time, so I won't worry about it. You should not have anything on your credit report that does not reflect what exactly you have actually done.

MIERZWINSKI: The way that the credit report models work, it is more likely you will have some other guy's car loan that he is not paying than that you have will some car loan that he is paying. But you have to look at the report. The kinds of mistakes are first the credit bureau simply mixes John Smith up with John Q. Smith.

Second, an identity thief took your name, but the accounts that are not yours appear on your report. And then third, there are mistakes with your own reports, where they say you were late and you weren't, or your mortgage or your student loan was serviced, and it appears as if there were two loans not one.

VELSHI: So you want to -- how do you correct these things? You have to write to the credit bureau? One of the thing we have been told is that everything has to be in writing. If you do it, you need a record.

MIERZWINSKI: You call the credit bureau first, but you need to write to them as well. When you get your free credit report, AnnualCreditReport.com, you will get a list of what your rights are, along with your free credit report. Absolutely, keep everything in writing. Don't send any originals to the bureau. And be prepared for a long siege It can take months to clean up your credit report. And by the way, when you call them up, you will be placed in voice mail jail for a long time. Be prepared to just sit and wait on the phone until they do eventually pick up.

VELSHI: And our viewers can go to AnnualCreditReport.com, which is where you can get your free credit report. Here is something interesting, Ed, that we have learned from you, and that is that a lot of people want to consolidate their loans and put it on one card or one loan, but it is important that you are not -- you are not using the maximum credit that is available to you. Why is that the case?

MIERZWINSKI: The credit bureaus use -- sorry. The credit card companies and the banks, they don't just look at whether you pay your bill on time. They look at how much of your credit you are using. So it is not that you are maxed out that is bad. It is that you are even using half of your credit or more, even if you pay on time, hurts your credit score. So the most important things to do to fix your credit score quickly are pay your current bills on time, look for mistakes and fix them, and pay down your credit cards to about one-third or less of what your limit is.

VELSHI: So if you had limit or combined limits on cards of say 10,000 dollars, you want to owe no more than 3,000 dollars, but you want that 10,000 available to you so that your debt to available money ratio is lower.

MIERZWINSKI: That is exactly right. If you were to close all of your cards and consolidate them on to one card, you might end up owing the same amount of money, but you only have a much tighter limit. That could be a mistake. You might want to keep the cards open, but pay them down just as you said.

VELSHI: OK, so I want to be clear. You are saying that if you have 10,000 dollars of available credit, you are using 3,000 dollars; you are saying it is better for your credit to have and keep the 10,000 dollars available credit and be using 3,000 of it, than to close out and be using 3,000 dollars of a total of 3,000 that's available to you.

MIERZWINSKI: That is exactly right. If you close out accounts and consolidate on to one card, you may move too close to the limit. The credit scoring computer is not as smart as they think it is, and that will make you look like a bad risk.

VELSHI: Very interesting.

MIERZWINSKI: So have the available credit available to you, just don't use the cards. Pay them down.

VELSHI: Right. That is the danger, you have to have the discipline to do that. Ed, good to talk to you. Ed Mierzwinski is consumer program director at the US Public Interest Research Group. Remember, go to AnnualCreditReport.com to get your credit report that you are entitled to free.

Coming up on YOUR MONEY, how to deal with debt and finances when you are in a relationship. I am not saying to base your relationship on it, but come back and we will tell you what to do.

(COMMERCIAL BREAK)

(NEWSBREAK)

VELSHI: Debt is probably one of the least romantic words I can think of. But our next guest says every couple should discuss it before getting engaged. Michelle Singletary is the author of "Your Money and Your Man, How you and Prince Charming Can Spend Well and Live Rich." Michelle, you say it is much cheaper to get out of engagement than out of a marriage. You are serious. You want people to talk about their money and their debt and their credit situation, and if it is not working out, split.

MICHELLE SINGLETARY, COLUMNIST, "THE WASHINGTON POST": That is right. People will spend a year planning their wedding and less than an hour or two talking about how they're going to handle your money together. If that is going to be you, it's better to stay single. But you have to be prepared to walk away from the relationship if, say, during premarital counseling, you find that you are at odds about money.

VELSHI: Michelle, how is that conversation coming up? I mean, when you are dating somebody, it is all love and fantastic. How do you even have that conversation? I have been telling guys for years they are suckers for what they pay on diamonds. You can't have that conversation.

SINGLETARY: You absolutely have to have that conversation. Listen, the first date is too soon. The honeymoon is too late. So you have it as you approach the talks about, I think you are the right one, the one. When you start to have those conversations, then the next conversation is, hey, baby, can I see your credit report? Can I see your credit scores.

VELSHI: You say that if people are elusive about this, that is a red flag. I got to say, I think most people are elusive about this, so you should probably cut your significant other a little slack. Is there some way you get that conversation going with can I see your credit report?

SINGLETARY: Well, you know, I think at that point, you need to be walking your way toward marriages or engaged before you actually share that actual credit report. But if someone balks -- if you asked them to marry you or you are engaged to a fellow and he does not want to show you that, and not put everything on the table, you need to walk away from the relationship, because if you can't talk about this before you get married, it is going to be very difficult to talk about it after you get married.

VELSHI: One of the biggest problems that married couples have, a source of arguments.

All right, let's talk about credit cards, bank accounts; a lot of people say, you know what, we have different ways of handling money. Our the credit scores are different, our ratings are different. Let's just keep it all separate. I have my credit card and you have yours. I have my bank account and you have yours. You don't like that idea? SINGLETARY: I don't. You might as well stay single. Listen, if you want to keep everything separate, then you should stay single, because what you are looking for is a roommate and not a lifetime mate. I am very serious about that. I know I am very different than a lot of financial experts who say, you should have separate bank accounts. That is crazy. That is what single people do. That's what roommates do.

If you are going to get married, you should join everything, income, debt, bank accounts, everything, because that forces you to sit at the table and talk about your financial life. If you can't do that, then you shouldn't be married. And this idea that whoever makes more should pay more of the bills is crazy.

So when you go grocery shopping, my husband likes ice cream more than me, should I not pay for the ice cream, because he likes it more than me? That is what we have couples doing in relationships, and it is silly and destructive to the relationship.

VELSHI: Let's say your credit score is 700 and mine is 700; are we marrying our credit scores? Are they going to be 600? Or are you getting mine and I'm getting yours.

SINGLETARY: First of all, I'm not marrying you if your credit score is 500. I have a standard. No, listen, when you get married, your credit scores are not merged. You keep your individual scores after marriage. It only -- what your spouse has in terms of debt or how they pay the bills only impacts if you have shared debt or co-sign on a car loan or a home. But you keep your separate credit scores. So if yours is over 700 and your honey's is in the 500, you want to spend some time to help your spouse bring that score up, so that when you do go get a house, you will get the best rate.

VELSHI: Michelle Singletary, that is the sound of relationships breaking up across the country. Michelle Singletary is the author of "Your Money, Your Man; How You and Prince Charming Can Spend Well and Live Rich." Thanks for being with us. Come back lots.

Coming up next on YOUR MONEY, your questions answered on all things debt. Michelle is going to stick around and give us some advice, so you stay with us.

(COMMERCIAL BREAK)

VELSHI: We are talking all about credit and debt today. We ask you to send in questions that you have on the topic, and boy, we got a lot of e-mail. Rejoining us in Washington, Michelle Singletary, author and syndicated columnist for the "Washington Post." Michelle, are you ready for questions?

SINGLETARY: I sure am.

VELSHI: First one up is from Yvonne, who asks, "can you help me to understand why there are three credit reporting agencies and why you have to check your credit with all three of them?" Great question. What's the answer to that, Michelle? SINGLETARY: It is a good question. Listen, there are three because there is competition. That is what they do. But you need to check all three of the bureaus, because you have three different reports. Not all of your creditors report to all three bureaus, so you need to check each one to make sure that the information is correct. Because that impacts your credit score, which of course impacts what kind of interest rates you will get.

Also, because they only contact one bureau at a time, you want to be sure that the information from a particular creditor is correct. Because say, for example, you want to go get a car loan. They may only pull your Equifax credit report, so you want to be sure to check that one. Another creditor may pull Experion.

VELSHI: Experion, Trans Union and Equifax, those are the three credit unions. Check them all. Caesar has sent us an e-mail. He says, I've recently run my credit and discovered student loans that are not mine and are five months behind. How do I handle that?

SINGLETARY: Well, you want to handle it very quickly. What you want to do is you want to file a report with the credit bureau and say this information is inaccurate. But what you want to do is contact the student loan company that is reporting that this is your debt, because when you contact the credit bureaus first and say this is wrong, they will go back to the source. So you want to start at the source to see what has happened. Perhaps they have mixed you up with someone with a similar name or similar Social Security number.

VELSHI: And Ed earlier on our show said, once you have written the letter to correct something, dig in, it could take a while. Alex has sent us an e-mail to say, I'm in a bit of debt. I'm managing to pay off all my monthly payments. I am not thinking about trying a credit service that can bundle most of my payments into a monthly payment. Is that a good idea? What should I look out for?

SINGLETARY: Well, a lot of people have all kinds of debt and they're trying to find somebody to help them. It is a good idea if you are overwhelmed. But you want to be very careful that you don't pay a lot of fees to have someone handle this for you. They are going to charge you a set-up fee from anywhere from say, 50 to 75 dollars, and then a monthly fee, which should not be more than say 40 dollars a month, if that.

But if you run into an outfit that wants to charge you 1,500 or 2,000, you can use that money to pay your bills. I would suggest that you go to DebtAdvise.org. And you can type in your zip code and you will find a legitimate credit counseling agency near you. But be very careful and you also want to be careful that they don't pay your bills late, because a lot of people get into some of these organizations and they pay your bills late, and then your credit score goes down.

VELSHI: Michelle, that's good advice. Please, if you are out there, and having a problem and you're going to help, make sure it is legitimate. Check out the organization you are using with. Check it out with your state, with your city. Just make sure it is really a legitimate organization, and not somebody who is just consolidating your loan and charging you for it.

Michelle, thank you very much for taking these e-mails for us. It's always a pleasure to talk to you. Michelle Singletary joining us with your e-mails.

Coming up on YOUR MONEY, a story of economic peril in America, a place you probably didn't expect. But first, this week's right on YOUR MONEY.

(BEGIN VIDEOTAPE)

VELSHI: The class of 2008 is leaving the care free college life behind for the real world. Step one, finding a job.

BRAD KARSH, JOBBOUND.COM: My best advice is to be flexible in the job search. A lot of students go into the job search right after they graduate and think, I want to work for one of the big four accounting firms in New York City. And if they don't get that job, then they are devastated.

VELSHI: Karsh says don't accept a job you aren't going to like, but be open about the types of companies you are applying to. Bigger is not always better.

KARSH: You can think medium-sized, even small-sized; those kinds of companies have lots of openings right now. The bigger companies hire well in advance; the smaller and medium-sized companies do just in time hiring. They are looking for people now.

VELSHI: Karsh says your first job will give you a good foundation and will teach you a lot about the working world.

KARSH: It's not 40 years ago where you had one job for the next 30 years. The fact is now, right now, people have by the time they retire something like seven or eight different jobs or careers that they go into. Your career path is a winding road. It's not straight and linear.

VELSHI: And that is right on YOUR MONEY.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

VELSHI: Well, you know, debt has become a huge problem when documentary films are made about it. Due out this summer IO-USA looks at our rapidly growing national debt and its consequences for the United States and its citizens.

Brooke Anderson has a closer look.

(BEGIN VIDEOTAPE)

BROOKE ANDERSON, CNN ENTERTAINMENT CORRESPONDENT: Documentary maker Patrick Creadon is putting the final touches on his new film. The subject, nothing less than America's perilous economic future. PATRICK CREADON, DIRECTOR, "IOUSA": The government has made more promises than it can possibly pay for.

ANDERSON: The title of his film sum's up the country's debt ridden condition, "I.O.U.S.A." Take the federal debt, the government owes more than nine trillion dollars. Or the Medicare or Social Security programs, they face long term deficits projected at more than 40 trillion dollars. The bill is being left for future generations to pay.

CREADON: It is just not fair. When you spend other people's money, which is what we are doing today, it is mean.

DAVID WALKER, "IOUSA": Our financial condition is worse than advertised.

ANDERSON: David Walker, who recently resigned as head of the Government Accountability Office, is among the stars of the documentary. He insists if political leaders don't address structural reform, the picture won't be pretty.

WALKER: Well, you could find the situation where the government is going to have to cutback on doing a lot of things that the people have now taken for granted, or where income tax rates may have to more than double.

ANDERSON: Failing that, the nation could see much higher inflation or interest rates, Walker argues. The impact could far exceed the current economic downturn.

WALKER: If we get a crisis, it will be much more dramatic than the one that we are facing today, and it will affect tens of millions of Americans.

CREADON: A lot of times when I am working on the film, I have one of my daughters sitting on my lap. We have three daughters.

ANDERSON: Creadon says he made "IOUSA," which comes out in August, largely out of concern for his kids' generation.

CREADON: If the debt stopped growing right now, we would probably be OK. We could probably handle it. It's not today's problem, it's what lies ahead.

ANDERSON: For these guys.

CREADON: For these guys, my assistant editors.

(END VIDEOTAPE)

VELSHI: That's CNN's Brooke Anderson. That's it for this week's show. Please send us your questions or comments on the topic of credit or debt or anything else that has to do with YOUR MONEY, and we'll do our best to answer you or do something about it on the show. You can drop us a line at YourMoney@CNN.com and we'll do our best to answer those on air. Thank you for joining us for this edition of YOUR MONEY. We'll see you back here next week, Saturday at 1:00 and Sunday at 3:00. See you then.

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