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Your Bottom Line

How to Reduce Your Debt and Your Stress; Newborn Financial Fears: Planning for Baby, Toddler, Teen and College Students; Going Green to Save Some Green

Aired June 27, 2009 - 09:30   ET

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

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is YOUR BOTTOM LINE, the show that saves you money.

Today, be debt free. We'll tell you how to reduce your debt and your stress. Then newborn financial fears. Planning for baby, toddler, teen and college students. Plus, going green to save some green. We've got a comprehensive list of products and projects that are worth it for your home.

YOUR BOTTOM LINE start right now.

You hear all the talk about President Obama's health care reform plan, but what does it all really mean for you? How will the proposed changes affect your bottom line? CNN's senior medical correspondent, Elizabeth Cohen is joining us now to help us answer those questions.

All right, Elizabeth, what does it mean for me?

ELIZABETH COHEN, CNN MEDICAL CORRESPONDENT: Well Gerri, it really depends on who you are. If you don't have health insurance, well chances are, reform will help you. If you already have health insurance that you're happy with, well it's a bit of an open question. Some say you'll be fine, you'll stay the same, others say not so fast.

Some of this is reflected in the recent "New York Times" poll: 85 percent of Americans polled say that they feel the health care system needs to change. They know it can't stay the way it is. But, 68 percent say they are concerned that reform could hurt the health care they already have.

WILLIS: Well, Elizabeth, does the question make sense, are people worrying for good reason? Will their care get worse if this passes?

COHEN: Well, you know, it's interesting, because president Obama was saying no if you're happy, things are going to stay the same, don't worry about it. Other people would say, look, president Obama is proposing a government sponsored health insurance option that would be out there as a choice with all the other private options that are out there.

And this is the theory, the theory is that your employer might see that less expensive government option and grab it and then you would no longer have the private insurance that you might like the way it is. So, some would say that if the government insurance option is out there, it will crowd out all the private companies and you'll be stuck with the government option, which some say won't be as good as the private option.

WILLIS: Well, is the president really tied to this idea of government sponsored insurance?

COHEN: You know, it's interesting, many of us have asked, will he veto something that doesn't include a government sponsored health care option and when he was asked that question this week, here's what he had to say.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We are still early in this process, so, you know, we have not drawn lines in the sand, other than that reform has to control costs. Right now, I will say that our position is that a public plan makes sense.

(END VIDEO CLIP)

COHEN: So, what it sounds like to me when you listen to him is that he's saying there might be some flexibility, that it is possible that he will not insist on a government sponsored health insurance option.

WILLIS: Elizabeth, there was a perception towards getting rid of what they called the "doughnut hole," the gap in coverage for people on Medicare. Tell us about that and what you make of it.

COHEN: Yes, the Democrats sort of put this out as a small step in the health care reform process. First, let's explain what the Medicare doughnut hole is because there's probably a lot of confusion on that. The way that Medicare works right now, Medicare will help you with your drug costs up until $2,700, but when you hit that $2,700 mark, forget it. You are on your own. You have to pay for 100 percent of your drugs.

Then if you hit 6,154, then they will start to help you pay after that point. But, when you're stuck in the middle between 2,700 and 6,154, which as you can see is a big gap, you're really stuck, you're paying for 100 percent.

WILLIS: Ouch.

COHEN: Ouch. Exactly. It hurts to get stuck in that doughnut hole. And so, the proposal that was reached, the pharmaceutical industry and Congress, said all right, OK, the pharmaceutical industry will give us a 50 percent discount on drugs that are stuck in that doughnut hole.

WILLIS: All right, so lots going on. I know you're following all the ins and outs. Elizabeth Cohen, thank you so much for your help today.

COHEN: Thanks, Gerri. WILLIS: Turning now from your health to your home, existing home sales rose 2.4 percent in May, that's according to the national association of realtors. Sounds good, but on the flip side, new home sales, well they unexpectedly fell just a little bit, six tenths of one percent. And if you're looking for a silver lining in prices, forget about it. The median price of homes that fell too, to $173,000, a 17 percent drop year over year.

So, if you're trying to buy, sell, refinance your home, what should your action plan be for this summer? Here to help us out, Greg McBride, he's the senior financial analyst at Bankrate.com.

Great to see you, Greg.

GREG MCBRIDE, BANKRATE.COM: Great to be here, Gerri. Thank you.

WILLIS: All right, let's talk about people who are trying to unload that home this summer and there are a lot of people out in the market who want to sell. Is now the time that you're doing those desperation moves, dropping your price, maybe adding incentives, offering to pay closing costs? What's the strategy?

MCBRIDE: Well, I think a lot of people have already taken than step. I mean, and this is one thing that really varies by market but there are a lot of markets where people have already taken those drastic steps and yet what's happening, they're being undercut by the three or four foreclosures down the street that may be undercutting their price by 20 percent or 30 percent.

So and I mean, and that's just not a gap that they can make up. So, I think a lot of that, you really have to get a sense of your market. Are the foreclosures driving the prices in your market or a market where prices were maybe a little more stable to begin with, not the big run up, not the big pull back, in that case those incentives and price cuts that you put into effect can make a big difference.

WILLIS: Wow, and so if there are a lot of foreclosures in your neighborhood, if you can wait you might want to wait?

MCBRIDE: Absolutely. Because otherwise, I mean, you've got these foreclosures that may be undercutting you by 25 percent or 30 percent. That's not a gap you can make up, I mean, particularly if you still have a mortgage on the home, if you have the ability to maybe rent it out or just hold on to it a little while longer until the market stabilizes that may be the best strategy.

WILLIS: All right, let's talk about buyers, these are the people that sitting pretty right now. There's an $8,000 tax credit out there for some first-time homebuyers if you qualify. That's good news. But are mortgage rates good news right now?

MCBRIDE: They really are. I mean, even though we had the rise in late May, early part of June, I mean, the fact is mortgage rates from a home buyer's perspective are not an impediment as long as you're not getting a large jumbo loan. So, you know, mortgage rates are low. I think the real impediment here is you have to have a job, proof of income, and the money for the down payment. It's the down payment requirements that have really gone up and that's the sticking point for people.

WILLIS: Yeah. So it's a real mixed bag. You have to be ready if you're going to jump into the market, right now.

I want to talk to you about a study out from Harvard University, the Joint Center for Housing studies, there, they say the silver lining here, the people that are going to save the market are Gen-Y. these are the folks that are going to come in and buy these homes boomers want to unload. And yet, I mean, you just said it, they've got college debt, they've got credit card debt, this is a tough time for them because of the recession. What would you advise people who are in that age category really want to buy?

MCBRIDE: Well, here's the thing. Three or four years ago a lot of those same people thought they'd never buy a house. Right? Because prices were so high. But, prices have come down, 30 percent, 40 percent, 50 percent in some markets, mortgage rates are low. So, they have a lot of tail winds.

You know, buying a house is like getting married, don't do it if you're not ready, you got to be in for the long haul and you have to be prepared for the financial commitment. So, if you have those two things, low mortgage rates are another boost to you...

WILLIS: All right, quickly, where are rates going? Mortgage rates.

MCBRIDE: You know, don't anchor to the sub five percent rates because I think the ship has sailed. I think the low fives maybe the best we can hope for going forward.

WILLIS: Low fives. We'll hold you to that. Greg McBride, thank you so much. Great job.

MCBRIDE: Thank you, Gerri.

WILLIS: We told you about the president's incentive plan to get more fuel efficient cars on the road with scams cropping up on the Internet before the bill has even been signed into law, here is how to protect yourself: Avoid Web sites that use the title "cash for clunkers." Instead look for the official name of the program, the "Car Allowance Rebate System." Write that down. It's the "Car Allowance Rebate System."

And don't ever give your social security number to a site that claims to help you register for incentives. Hey, guess what? No customer registration is need. And no Web site can give you a list of car dealers registered with the government, as the registration process hasn't even been developed yet. If you have questions about the program call the National Highway Transportation Safety Administration at 888-327-4236. That's 888-327-4236. And if your credit card bills are overwhelming, well, you still have options. We'll give you the facts on handling your debt and protecting your credit score.

(COMMERCIAL BREAK)

WILLIS: Is there a pile of unpaid bills on the corner of your desk? Are you wondering if it's the right time to seek out a debt settlement company or a credit counselor? Gerri Detweiler is the author of "Reduce Debt, Reduce Stress" and joins us from Tampa.

Gerri, great to see you.

GERRI DETWEILER, CREDIT.COM: Good to see you.

WILLIS: All right, you know, we've heard the story and it seems to be getting a lot of attention about people who are actually calling credit card companies and just simply asking for debt forgiveness. Maybe they agree to pay 25 percent of their debt, maybe 50 percent. Does that work?

DETWEILER: It does. But it's not a walk in the park. First of all, you will have to fall behind on your bills. They're not going to settle if you're current. And you have to be in a hardship situation. If you're just someone who doesn't want to pay the full balance, you're not going to get a good deal. If you are falling behind and your only other choice is bankruptcy, then your creditor may be willing to settle and get something rather than nothing.

WILLIS: All right, let's talk about how you would do this as a practical matter, though. Aren't credit card companies more willing to settle with people who are maybe three months late, haven't been able to pay for 90 days?

DETWEILER: Yeah, you definitely have to go delinquent. You have to stop paying. And now, what's new, in the past six months, is that creditors may approach you with settlement offers rather than just charging off the debt and sending it to collections.

So, what you do is you tell them, I'm in a hardship, I'm trying to avoid bankruptcy, I'm trying to do what I can, and they're probably going to start coming to you around month three, month four, maybe month five, and offering you deals. But, you also have to have a lump sum that you can use to pay off the debt. So, if you don't have the $2,000 or $3,000 settlement amount, this isn't going to work for you either.

WILLIS: All right, so I can think of two downsides, here. Despite the fact that you're getting your debt forgiven this is going to hurt your credit card score and you have to pay taxes. Let's talk about those.

DETWEILER: Yeah, your credit score is going to really be affected by this. But, if you're in a hardship situation, again, and bankruptcy is the only alternative, it may be better than going bankrupt and having that in the public record. The tax issue is really important. The IRS considers forgiven debt taxable income. They will require the creditor to send a 1099 saying that you earned this income.

So, what you have to do is if you're going to settle you want to talk to a tax professional immediately, the moment you settle. Don't wait until you get the 1099 because if you can prove you're insolvent upside down at the time you settle you may be able to get that tax bill wiped out.

WILLIS: You know, in many ways, this is so much better than working with one of those debt settlement companies. It's so hard for folks to find really good advice when they have very high debt. Sometimes there are charlatans some out there that really hurt people even further, even when they're deeply in debt.

DETWEILER: Yeah, I think the problem arises when a person has six or seven bills they're trying to juggle and a lot of times at that point they don't know who I pay first, is this a good offer. And at that point a lot of times they want to reach out for help.

But, I always, Gerri, I always advise someone who's thinking about settling to talk to a bankruptcy attorney so at least they know their rights and they know what that option would entail because it is possible, even in this situation, for your creditor to sue you.

WILLIS: Oh, boy. OK. Well, we don't want that to happen. But, I got to tell you, you've put some ideas in the heads of all of us, you know, average American has $8,000, $9,000 worth of credit card debt, we're all thinking now. Thank you so much, Gerri. Appreciate your time.

DETWEILER: Thank you.

WILLIS: Imagine getting into a fender bender and weeks later getting a bill from your town or city government to cover the cost of the police and emergency services and I'm talking about accident taxes. You know, they may sound farfetched, but hey, it's happening all over the country.

(BEGIN VIDEOTAPE)

JAY MIDDLETON, BILLED FOR ACCIDENT: I felt like I was robbed. I felt like someone picked my pocket.

WILLIS (voice over): Two years ago, Jay Middleton was rear-ended by his daughter Jillian, who was following him home in her car. But it's what happened after the fender-bender that still infuriates him.

JAY MIDDLETON: Six weeks later I get a bill from an accident. I thought it was a joke.

WILLIS: But the local police department in Pennsylvania was serious. The Middletons got a bill in the mail for nearly $300. The fee, an accident tax, conceived by a company that acts as a safety services billing department for police and fire departments. The tax targets out-of-town insured drivers. JILLIAN MIDDLETON, BILLED FOR ACCIDENT: The police officer was only there for five minutes and to fill out one piece of paper was a little excessive, I thought.

WILLIS: Excessive, maybe, but it's definitely widespread. At least 25 states have municipalities with the so-called crash tax in place, according to the Property Insurance Association of America. Eight states have passed laws banning the fees, the latest, Florida, where State Senator Mike Bennett sponsored the legislation.

MIKE BENNETT, FLORIDA STATE SENATOR: We really found some kind of outrageous examples of people who were being charged what we ended up calling the crash tax for services we felt that their property taxes should already be paying for.

WILLIS: But in Jackson County, Missouri, it's still legal. And fire chief Steven Westermann defends it.

CHIEF STEVEN WESTERMANN, CENTRAL JACKSON CO FIRE PROTECTION: In these hard economic times, for any fire department, any alternative funding or any other options that are available are being looked at.

JAY MIDDLETON: And how the heck do they get these numbers...

WILLIS: Jay Middleton says the crash tax could be coming to a town near you.

MIDDLETON: Even though your town has one of these ordinances and you may be exempt from it, the town next to you where you don't live, if they adopt one, you're going to pay.

(END VIDEOTAPE)

WILLIS: Hey, paying the bill isn't the only option if you get hit with the accident tax. We heard of one case where the driver performed community service, as well.

From day care to college tuition, having kids comes with a hefty price tag. We'll get you started on the right foot with a budget for your baby.

(COMMERCIAL BREAK)

WILLIS: Children are a blessing, but you know, the financial stress they cause, it can be a curse. If you're ready to start a family or waiting anxiously family or waiting anxiously for the due date, our next guest will help you calm your newborn financial fears. Stacy Bradford is the author of "The Financial Guidebook for New Parents" and she joins us.

Stacy, great to see you.

STACY BRADFORD, AUTHOR: Great to see you, too.

WILLIS: And you've got a lot of street cred on this topic because you're pregnant right now. BRADFORD: That is correct.

WILLIS: So, let's talk a little bit about the numbers, because I don't think a lot of people realize having a child is a huge financial obligation that goes on for all your life. The first year you might spend $11,000 to $16,000, throughout their lives you may spend $200,000 and you say probably more?

BRADFORD: What a lot of people don't realize is that if both parents work you're going to have to pay for child care and that alone could double your costs in the first year.

WILLIS: That's a lot of money. All right. Well, let's talk about how you budget for that when you're going to that child, what should you do with your budget to prepare for that?

BRADFORD: Well, in this particular economy, I think it's a little different. The first thing you need to do is set aside a rainy day fund just in case one parent ends up having some kind of job loss, because it's so stressful having a baby, the last thing you want to do is also not have any sort of extra money to get you over that hump.

WILLIS: And, you know, obviously having that rainy day fund is a great thing and really make as big difference for so many people if you have a lot of problems. Another issue for those folks, though, health care. Let's talk a little about what you need to know about your health care, at work, what it's going to cover. What are the right questions to ask, Stacy?

BRADFORD: Well, the first thing you have to realize is that you probably need to switch plans at least upgrade to a family plan once you have a baby. And fortunately you can do that at any time, you don't have to worry about open enrollment.

But then you may decide that you want to switch some of your doctors because all of a sudden you're going to seeing your O.B. monthly, at the end weekly. You want to go to someone who's in network, if you can. And the same thing with the pediatrician. Kids get sick all the time. The last thing you want to do is be spending thousands of dollars every time they get a sniffle.

WILLIS: I want to tell people to start saving for kids' college when you're thinking about having kids. I mean, to really get in front of it. So many folks find themselves in their 40s and their 50s and they're still trying to come up with the dough each and every year to pay for that college expense. What do you recommend for young parents?

BRADFORD: Well, I think it's very true that college is a huge expense and if you can afford it you should start saving right away. But, right now a lot of people lost a lot of money in their retirement account, so they really need to worry about that first. So, if that might mean that somebody can only put aside maybe $100 a month for college, and that still helps. It's still worth the effort to do that. WILLIS: All right, so you want people to make sure that they're not spending their retirement on college costs. Good advice there, I definitely think so.

Let's talk about as those kids get a little older though, what are the financial obligations that you might not think about that you're going to have to prepare for?

BRADFORD: I think a lot of people don't realize they want their kids to go to private school and don't realize just how much money that is. Sometimes it's more important or it's more helpful for people to move to a neighborhood where the schools are better, where they can actually send their kids to public school and I also think you have to look at all the activities that kids do. We all want our kids to be able to play soccer or do ballet, but if you do too many you could spend a lot more money than you realize.

WILLIS: Well Stacy, great advice and good luck with your upcoming little one. It's great to see you again is. Thanks so much.

BRADFORD: Thank you very much.

WILLIS: And an eco-friendly house is a terrific goal, but the improvements you need to make can be expensive. We'll tell you how to make those improvements for less.

(COMMERCIAL BREAK)

WILLIS: An energy efficient home could save you money in the long-run, but improvements, well, they can cost you a bundle up-front unless you live in Babylon, New York.

CNNmoney.com's Poppy Harlow reports.

(BEGIN VIDEOTAPE)

POPPY HARLOW, CNN CORRESPONDENT (voice-over): A small New York town is taking unprecedented steps to green its homes. Jeff Christiansen and his wife Jo are taking part.

JEFFREY CHRISTIANSEN, HOMEOWNER: We signed up for a program through the town of Babylon called Green Homes Long Island enabling us to do improvements to our home for energy efficiency we wouldn't have been able to do otherwise.

HARLOW: Residents can get up to $12,000 of home energy improvements funded by the town, which homeowners pay back month by month, and it's expected the cost will be offset by their energy savings.

CHRISTIANSEN: It's $11.5,000 for the total job and we'll paying it back at about $111 a month.

STEVE BELLONE, TOWN SUPERVISOR: You're making these improvements, your house healthier, more comfortable, more valuable at no cost to you. HARLOW: the first step Is an energy audit, which means business for local companies.

RICH MANNING, ENERGY AUDITOR: We're trying to determine's leakage of the house and then just blow this band up to a certain number and see what we have.

That's telling us the house is very, very leaky. Now we can develop a work (INAUDIBLE) based on that.

The first and main thing is air sealing the attic. That's where you're going to get your biggest bang for the buck. The next area we want to key on is the basement where you get your air filtration, where the air comes in.

HARLOW (on camera): Your house might have one of these and you might not even know it. It's a crawl space in your basement, where air leaks outside, and that means energy is wasted. By insulating it, by putting this foam on the wall, you can save energy and reduce your energy bill by about 20 percent. And the insulation lasts for the lifetime of your house.

(voice-over): The city expects homeowners will saving an average of $1,000 in the first year of the program. And since the town hires locally, the program creating much needed jobs.

MANNING: This is increased our business tenfold.

BELLONE: One of the things we say, if you invest that money into a project, you're going to create green jobs. But, if you invest it into a sustainable program, you're going to create green careers.

HARLOW: As for the Christiansen's, their goal is aggressive. They hope to cut their energy use in half and say, they'll throw on an extra sweater this winter to make it happen.

Poppy Harlow, CNNmoney.com.

(END VIDEOTAPE)

WILLIS: Maybe your town isn't offering incentives like this, but there are other ways you can grab some cash to make energy efficient improvements. Uncle Sam, for example, is offering tax credits worth up to $,1500 if you swap out your old appliances for energy efficient ones or if you add insulation your home or replace windows. Just make sure you hold on to the receipts until you file next year's taxes.

And if you want more info on what will qualify for the tax credits, go to energytaxincentives.org. And hey, don't overlook programs offered by your local utility company. You may qualify for a free home energy audit, which can help you pinpoint exactly where you can save money.

As always, we thank you for spending part of your Saturday with us. YOUR BOTTOM LINE will be back next week, right here on CNN. You can also catch us on HLN every Saturday and Sunday at 3:30 p.m. Eastern Time.

And you can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN. Don't go anywhere your top stories are next in the CNN NEWSROOM. Have a great weekend.