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Your Money: Taking Charge

Aired July 4, 2009 - 13:00   ET


CHRISTINE ROMANS, CNN HOST, YOUR MONEY: It is time to take charge of your money. Over the next hour critical information to protect and grow your money. The facts you need for your personal money make over. I'm Christine Romans. Welcome to a special edition of YOUR MONEY: TAKING CHARGE.

ALI VELSHI, CNN HOST, YOUR MONEY: I'm Ali Velshi. Debt, bad credit, emergency funds, that all seem pretty overwhelming. But our panel of experts is here to ensure that you can take control of your finances today. For starters we'll show you how to take a personal financial stress test.

ROMANS: It is easy and you need it.

And did you know everything from cell phone bills to doctor bills, they are negotiable. How you can pay less for the services you use every day.

But first, Americans have been living beyond their means for too long. Look no further than our addiction to credit card debt. For too many those first simple credit card purchases spiral into a vicious cycle of spending, high interest rates, late fees, and then ballooning balances.

VELSHI: If only you knew when you were making that purchase that you're going to pay for this for so long. As with all of the issues we're tackling in the next hour we're going to explain the scope of the problem and then offer some real solutions that you can use in dealing with debt. We begin with "Fortune" editor at large Shawn Tully and Tamara Draut she is the vice president of Policy and Program at thee most, a nonpartisan public research and advocacy association. Thanks to both of you for being here. I think we can agree we may not agree on the solutions but we can all agree Tamara that we have a debt problem. How would you characterize it? How serious is our debt problem in this country on an individual level?

TAMARA DRAUT, V.P OF POLICY AND PROGRAM: Well it's serious. And lets start with the big number which is households have $960 billion in credit card debt. Let's break that down a little bit more. If you look at what the average low to middle income household who has credit card debt is carrying it's about just over $9800. So it's pretty significant. And going into the recession, dealing with the recession, is going to make paying off that balance a lot more difficult than it was before hand.

ROMANS: Now one of the things Tamara that I wanted to ask you about is why are people carrying this debt? Is it because they are just going crazy and living beyond their means? Is it because wages have not kept up with the cost of living? And they are having to, you know; go to the credit cards to just meet the daily bills? What is the reason?

DRAUT: Our household survey shows that a big reason here is dealing, trying to bridge the gap between falling incomes and rising costs. Also using credit cards as a plastic safety net. The top reasons people issued for the credit card debt they carry, medical expenses, dealing with a job loss, helping to buy food and basic necessities. Those are the things that are really contributing to some very high levels of debt among particularly low and middle income households.

ROMANS: All right. Shawn when we talk about people and handling their debt we often use flat panel TV screens as an analogy or cars or things like that. This is an interesting idea, though, that if a quarter of your income for many Americans is debt, and it's used for necessities what does that tell us? Do you think this is a serious problem?

SHAWN TULLY, EDITOR AT LARGE, "FORTUNE:" Yeah, I do, because a lot of the debt was accumulated in a much better market, and a much better job situation than we're in now. A lot of people were essentially took out credit card debt because the credit card companies made it so available and the costs were fairly reasonable for a long time. The default rates on credit cards were only about 3 percent, now they are approaching 10 percent so the banks loved it and thought that the low default rates would go on forever. Unfortunately they tripled.

So the problem is now that people who are losing their jobs don't want to pay this money back, can't afford to pay it back in a lot of cases and the banks are forcing them to pay it back via very, very high interest rates and shortened periods of repayment. Decrease in credit lines, we're seeing constantly people getting letters saying we're putting your payment schedule on a shorter schedule, we are raising your interest rates.

Some other debt problem has triggered an increase in your interest rate. You go to try to take out another cash advance or interest rates will increase, et cetera. So at the same time that people are strapped, the banks want to bring down these credit card balances substantially and they are not at all anxious to allow people to draw down under the existing lines which are shrinking by the day.

VELSHI: You know Christine; you've been doing something called Roman's numeral. It's a number we didn't know about. And it has been about credit.

ROMANS: That's right. Taking a look at a number that is sort of driving the story forward, a way to look at what it means for your money. The Roman numeral here is 688 months or 57 and third years.

VELSHI: That's incredible. This is the number of years it will take you to pay off a credit card if you make the minimum payment every month.

ROMANS: That is right. At 18 percent interest, you pay only the 2 percent; we used Tamara's number $9,827 for the average credit card debt for households that are carrying a balance. And if you just pay the minimum 2 percent and let it go, that is how long it would take to pay it off. You pay some 28 grand in interest. Most people don't just pay the minimum they pay a $200--

VELSHI: Not everybody has an 18 percent credit card. But Tamara, whose problem is this? Is this something that our viewers need to sit here and say oh my goodness, look at that, 57 years, use the calculators on line to solve your problem. Is this a government problem in terms of regulation, is this the bank's problem? Is it all of our problem? How do we solve this?

DRAUT: Well, I think it's everybody's problem. The solution has to be multifold. First of all, we need an -- it's happening right now we do need better regulations. Because people are being walloped with surprise interest rate hikes that are being applied to their existing balance so we need to rein in some of the more abusive practices that ensure that people are going to have a very hard time paying off those balances.

Then we have to tackle some of the larger economic challenges that people are facing that is the reality. Their incomes have not gone up for about eight years. But health care costs are spiraling out of control, the cost of college is going up, food, utilities, you name it. So we need to solve some of the fundamental economic problems facing middle income households.

ROMANS: Shawn let's talk about personal responsibility here. Because a lot of times when you talk about these issues, you'll hear people say look, this money doesn't come for free and everyone should know this money doesn't come for free. Is there an element here of we all went a little crazy over the past 20 years or so, in the 1980s you needed a credit card it was a charge card that you paid off. In a way has this easy availability of cheap credit helped hide some of the structural problems for us and now we have to pay?

TULLY: Absolutely. You see the same problem in the mortgage market where people took out loans with exploding interest rates; they are going to cause a tremendous problem going forward. Those are the ones I think the banks are going to be forced to modify. But the same thing happened with credit cards. Clearly people went much too far with debt. And their incomes are shrinking in a lot of cases this is proving to be a much higher proportion of their income in terms of the carrying costs.

But I agree with what Tamara said, clearly nobody can understand a lot of the small print in these credit card agreements. And people are getting hit with surprise increases in their interest rates and surprise shrinkage in the time they have to pay.

ROMANS: And that is going to -- those changes are coming. They are going to change that. That's changing.

TULLY: Those changes are coming. The change that is not good is capping interest rates in a lot of cases. Because what happens then is that you just have a big shrinkage in the availability of credit card lending. I think that's a mistake.

ROMANS: All right.

VELSHI: Shawn, good to talk to you. Thank you so much for being with us. Shawn Tully is editor at large at "Fortune" and Tamara Draut is the vice president of Policy and Programs at Deamos (ph).

Well how healthy are your finances. No more avoiding the question. We've actually got a way to test them. We're going to do that next.


VELSHI: This is one of the most helpful things I've come across. You know how healthy your personal finances are? If not we can help you find out right now.

ROMANS: Yes, we really know more about our finances right after the last year. A lot of us have really been trying to take a look at just how healthy we are. What we can stress test ourselves. Our friends at will come up with a pretty easy way to test the strength of your money plan. Poppy Harlow is here to take us through. You know the bank has a big stress test. This is the stress test for you.

POPPY HARLOW, CNNMONEY.COM: This is more important for you, for the individual.

VELSHI: It's less stressful to take the test.

HARLOW: True. A little bit of stress involved when you look at the housing cost at least here in New York City. But let's show you what we're talking about. It is my favorite tool on You go to the personal finance tab, click on it. What it brings up this page. You enter your age. We put in 40 years old and annual income of $50,000. Hit go here. What you see is all of these different options. We picked a few. Let's look at housing payments. What we put in here for housing payments is $1200 a month. That's your mortgage or your rent, it includes your property taxes, your insurance, and click enters here.

On $50,000, be careful because you are spending too much on housing. This payment really shouldn't exceed 28 percent of your gross income. That's hard to do in some cities but that's what you should know on that. When you look at debt, what we put in for this number is $1800 a month. That does include your mortgage if you have one.

VELSHI: Make sure not to double calculate. A mortgage in the other one.

HARLOW: These are all independent readings. That is a great point Ali. But click enter here and there you go. Danger. Again on $50,000 a year, you're carrying too much debt. That payment, again, including your mortgage shouldn't exceed 36 percent of your gross income. This is an important one. Where do your retirement savings stand right now. A lot of people are pulling back from what they put in their 401(k), the market is so questionable. If you're making 50,000 a year you already have $75,000 put away as savings in the bank and you are putting away $500 every month on top of that, there's some good news. You are on the right track for retirement right now. You can retire comfortably at this pace by age 65. Very cool tool. Personal finance section, right there, of

VELSHI: And they got a tab for emergency savings, they got a tab for diversification, your IRA. I got to tell you I really like the tools that are on I use them a lot. I wrote about them in my book. I direct people there. This has to be one of my favorites.

HARLOW: It is fantastic. Because even if you are spending a little more than you can and you are not saving enough, better to know that. Everyone says they don't open my 401(k) statement. You got to do it. You got to see where you stand.

ROMANS: You are paying more for the housing, depending where you live; you can adjust someplace else and see where you are someplace else to try to make it all work out in the end. What I don't like is how many times it says careful. I thought I was doing everything right.

VELSHI: All right. If you want to get to that yourself you really should, health. A really great tool.

ROMANS: Poppy Harlow.

VELSHI: Well once you know what financial shape you're in it is time to take charge. So grab a pen and paper, it is time to cut your spending, lower your debt and create a budget that actually does work for you.

ROMANS: Oh a budget. That's right. Ryan Mack is the president of Optimum Capital Management and Louis Barajas is a financial adviser and author of the book "Latino Journey to Financial Great." Thank you for joining us. Ryan let me talk to you first. Because you, I can't even count the number of times I have heard you say the starting point is you have got to figure out what's coming in and what is going out. You start with a budget. That is the building block for everything that comes next in trying to figure out what to do with your money.

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: The budget is probably one of the most boring but most helpful things in the entire financial plan. You can't do anything without a budget. You can't figure out how long it's going to take to manage for your retirement. An account without a budget, you can't figure out how long it's going to take for you to put away funds for that vacation, to purchase your first home. When you are managing for your budget, we need the budget. As much as 60 percent of America is spending that money in a deficit. Just because they don't budget responsibly.

VELSHI: In other words some people wouldn't choose to be in deficit but they don't even know that they are. This is a big issue. Even if you sit down, if you decide this afternoon you want to do a budget, the reality is we miss most of the stuff that we spend. A lot of us our spending is not stuff that would actually show up on our budget. Why is that? LOUIS BARAJAS, FINANCE ADVISOR: Absolutely. Because the things you're not taking into consideration for example if you have to pay your auto registration fees, you're not going to pay six months from now or taking say one day off to take your kids to some kind of amusement park. That's not going to go in the budget. Technically most of the time most people will miss almost about $1,000 a month on their budget when they don't take those things into consideration. Also birthdays, celebrations, anniversaries, very few people take those things into consideration in the budget.

ROMANS: You say you can't change what you don't acknowledge. I think that's a really important point. You've got this great illustration, a debt dissolver on how to tackle this. Walk us through this. What do you mean?

BARAJAS: What happens is that again you can't change what you don't acknowledge. You have to be aware of all of your debt because if you're not doing that, you're going to have a lot of problems dissolving that debt. So what I do is I have you write down what debt you have, whether it is a MasterCard, a visa, then I'll sit down and the most important thing is you want to be aware of what interest rate you're paying on that debt.

Again, I sit down at the kitchen table, pull all of the statements out for the client, then take a look at -- I'll ask them what is your interest rate on this credit card debt. Most people don't even know. They tell you 13 percent when it's really 24.9 percent. Then you're going to sit down and write the amount that you owe on this credit card debt. It's really important to write down the amount. Most people, again, think that they are owing a lot less.

Also what I want people to do is I want them to write the amount that the limit that they have on their credit card debt. Not on the credit card but how much money do they have left available. Because we might use that if they have a lower interest rate card to transfer.

VELSHI: In this particular case you got $15,000 balance on a $15,000 available credit so you're maxed out.

BARAJAS: You're maxed out.

VELSHI: You are probably likely to be hitting charges because you are going over your limit.

BARAJAS: Absolutely. The next thing is we want to write down what the minimum payment is. I mean, because again, if you had a lower credit card it would make the lowest payment there, and then if you had one that had more like this one, you want to pay more. Now in this situation this person was paying the lowest minimum payment that was her monthly payment.

So, we want her to do, to make more than the minimum payment. Otherwise they are going to be paying this debt forever. So there is a lot of strategies. Then I have them write down strategies. We're not going to use this card any more; maybe we're going to transfer some of the debt to a lower interest rate. There are so many things you can do. We are going to call the credit card company, see if they can lower the debt for us. Sometimes we want to -- we don't realize all of the strategies that we can use. So I use this as a tool. Just like we talk about the money, tool that you just talked about right now, the stress test, this is a great tool.

VELSHI: It is fantastic. You can get this on many Websites, including, you can go there and you can enter your credit cards and the interest rate. It will tell if you, you increase the minimum payment like you have said or decrease it how much longer it will take.

Now Ryan here's the thing. If somebody comes to you with this, that situation, where they are maxed out, they are only making their minimum payments, first of all what are the strategies they can use to alleviate that. Secondly, if they also don't have an emergency fund do you advocate paying that credit card down or parts of it first so you can use that as an emergency fund or you think the emergency fund should be kept separately?

MACK: Well first of all when you talk about budgeting, three simple steps I usually do with budgeting, is really write down your estimated budget, take the next 30 days and write down a spending diary to figure out exactly where you're spending your money and where your money is going. Then the third step is put down an actual budget.

Now, once you figure out in this situation here, we have an individual who is already maxed out on the credit cards, they are paying 25 percent, so in this interest rate is so high it's kind of hard to defend putting money in an emergency fund you're only going to be earning maybe 2 to 3 percent interest rate maybe within this economic environment. But the psychic income that sometimes individuals might have by putting, if you have $400 a month extra in your surplus, putting $350 toward that credit card debt maybe putting $50 into an emergency fund you might not be getting the amount of return on the emergency fund but the psychic income that go get 'em attitude to say hey you know what I have a little bit more money in my emergency fund.

VELSHI: Louis calls that a confidence fund. You sort of agree with that Louis that sometimes you just got to have a little money on the side?

BARAJAS: Absolutely. What you want to do, you want to pay down the debt, you want to work this muscle and you want to increase your savings, you want to work this muscle. You want to make sure there is balance because you want to give people confidence and self esteem. You want to give them a better future. All of this is about doing the budget, paying down the debt, we want to build people's self-esteem, and we want to make sure their relationships are stronger because as we know this financial stress of having too much debt and spending too much is causing a lot of relationship problems across America right now.

ROMANS: We have relationship problems you and I about money. Don't we?

VELSHI: But we set a regular date to sit and talk. ROMANS: We work it through in public therapy.

VELSHI: We sit and talk about money with everybody else.

ROMANS: Two hours every weekend. Gentlemen, stick with us as we're going to talk more about emergency funds and Ryan has got some incredible stuff how to make sure you're not spending money when you are emotional. Because that can really kind of blow a budget out the window. So we're going to talk about that. Stick with us everybody on that. Ryan you know your birthday, you know your Social Security number, and hopefully you know your anniversary. Do you know your credit score?

VELSHI: I would say most people say no.

ROMANS: The anniversary or the credit score?

VELSHI: The credit score.

ROMANS: It is your financial DNA. We'll show you how to make it better.


VELSHI: Well your employer, your bank, your credit card company they will all check your credit score at one point or another. Have you looked at it lately?

ROMANS: If now it's time to look into it. Because having good credit is more important than ever. Gerri Detweiler is a credit adviser at; she is also the author of "Reduce Debt, Reduce Stress."

VELSHI: That's exactly what we're talking about.

ROMANS: Stress, is all about the factor that you can sleep at night with how much debt you have and what your situation is.

VELSHI: Gerri good to see you. Thank you for being with us. Let's talk about the credit score. A lot of people are confused about the difference between the credit report and the credit score. What is the difference? Which is more important? What's the story?

GERRI DETWEILER, CREDIT.COM: The credit report is the ingredients and fico makes the recipe that produces the credit score. So your credit score will be different depending on which credit bureau supplied the underlying information, Experian, Equifax or Trans Union. In addition, one important thing to keep in mind is that many of the credit scores you get for free or you maybe get as a gift from one of your financial institutions, those are usually not fico scores and they are on a different scale. So you could appear to have say an 800 credit score which is golden with fico but may be just so-so with one of these other credit scoring systems.

ROMANS: So what is the anatomy of a credit score? What goes in there that decides what my number is and all of these people want to know about. VELSHI: This is like the eleven herbs and spices, with the Coke recipe. Do we know actually how it's done?

DETWEILER: I think it's in that vault with the Coke recipe. It's pretty secretive. There's about three main things that go into your credit score. We know if you pay your bills late, you have a collection account, bankruptcy, foreclosure; all those things are going to be negative. That's about a third of your credit score, is the negative information.

Another third of your credit score is the debt you carry. And what they are looking at there is how close are you to your credit limits on primarily your credit cards. So the closer you get to the credit limits, the lower your credit score. And there's no set number, 50 percent is not perfect, 30 percent is not perfect, 10 percent, using 10 percent of your available credit is probably ideal. The other third is things like how old is your credit score, how long have you had credit, how many recent inquiries are there into your credit score, those are the things that make up the other third.

ROMANS: I have this credit card I've had since like 1992, the first credit card I have ever had, and do you know that people keep telling me never close it. Use it, pay it on time but don't close it. It's good for your credit score. That's right, right?

DETWEILER: Yes, it's probably good advice. Unless they decide to charge you an annual fee for example because you're not profitable, not carrying a high enough balance you can close it. But what you don't want to do is get your credit report see all of those old accounts that you don't use anymore and close them all out because that typically will lower your score.

VELSHI: Make sure that it's noted that you closed it. Because if it was closed on you. Gerri tell me what's better. You said using 10 percent of your available credit. If you are using 90 percent of your available credit that's bad because they deem you to be using too much of your credit. If you are using none and you have too much credit available can that hurt you?

DETWEILER: No. Having too much credit available will not hurt you with a fico score. They don't care. But I do recommend you keep those accounts active. Because a lot of issuers now are closing inactive credit cards. So just pull it out, buy groceries, gasoline, something you would buy anyway, pay it off in full, and keep the account active. That will help your credit score as well as reduce the likelihood they will close the account on you.

ROMANS: Fascinating to me Gerri too that who looks at this score.

VELSHI: It is more than you think.

ROMANS: Somebody who is looking at you for a job can look. Lenders, insurance companies, even your cell phone provider.

VELSHI: Can your potential employer or your current employer look at it without your permission? DETWEILER: The only person who has to get your written permission is an employer. They have to get your written permission. Everybody else just has to have a legal purpose for getting your credit score. And the cell phone example is a good one. I was in line behind a woman trying to get a cell phone. She got turned down for the cell phone plan she wanted because of something on her credit report so it's important to stay on top of it and check it and make sure it's accurate and complete.

ROMANS: Does it hurt if you check your credit score yourself? Does it show that you opened up the account, does that hurt? You are told don't do that too often because it makes it worse.

DETWEILER: That's a great question. It does not hurt your credit score to check your own credit report. That's a soft inquiry, nobody knows about it except you and the credit bureau. So don't worry it is OK to monitor your credit.

VELSHI: OK, so we have a lot of information on how it works. Now we're going to talk to you, we're going to come back and talk to Gerri about how to fix it. That's the question people are giving us. How do you fix it? Should you pay someone to fix it for you? What's the safest way to go about fixing your credit score? If you are drowning in debt, you don't feel like there is anything you can do we have some hope for you. We have a simple way to get started right now.


ROMANS: All right. Welcome back to a special edition of YOUR MONEY: TAKING CHARGE. It's critical you put yourself in a position to get out of debt. This show is going to help you with the tools you need to do just that.

VELSHI: All right. In addition to the ones that we can give you to help yourself there are many options for credit counseling but you have to beware of scams. Back with us Gerri Detweiler she is a credit adviser with and Todd Mark who is the vice president of Education at The Consumer Credit Counseling Service of Greater Dallas. Gerri welcome back. Todd good to speak to you again it has been a long time.

Listen let's talk about a question we get a lot of. That is how do know when you need a credit counselor. How do you know when it's time to get outside help? Gerri let's start with you.

DETWEILER: I think if you find that you cannot get ahead yourself, there's absolutely no harm in getting some outside help from a credit counseling agency. The reason is it's confidential, the first consultation is probably free and at a minimum they can maybe help you find some ways in your budget which we were talking about before, find some ways in your budget to cut back and put more money toward your debt. So there really is no down side to getting that help.

ROMANS: Todd, you say you need to just do a little bit of risk assessment. If you are having trouble paying your credit card bills, if you are fighting with your spouse or having trouble at home over concerns about bills, it's time to see a credit counselor.

TODD MARK, CONSUMER CREDIT COUNSELING SERVICE: Absolutely. We actually designed a risk assessment test with the "Dallas Morning News" late last year and we were ahead of the curve before the Federal Reserve did a stress test for the banks we were doing it for consumers and we were looking at are you behind on your mortgage or your car, what's the level of credit card debt that you have, and then going away from the financial risk, looking at are you fighting with your spouse, are you having trouble sleeping at night, are you having a rise in blood pressure. Your doctor telling you, you need to settle down a little bit. That's when you know it's time to see a credit counselor.

VELSHI: Where can people find the information on that test, by the way? How do they get something they can plug into?

MARK: They can go to the "Dallas Morning News," Dallas, and search for dollar wise. You'll see the risk assessment test.

VELSHI: Gerri you also have a bit of a calculation here where you say if you take up your minimum payments on your credit cards, multiply the total by 20 percent, add that, so basically take up your total, add 20 percent, if you can't pay that off yourself then you have a problem.

DETWEILER: That's right. That's the calculation you use to determine whether you can get out of debt in your -- on your own in three to five years. Your minimum payments plus 20 percent of that total add it together. If you can pay that every month and not dig the hole any deeper you can probably pay off your debt on your own. If you can't then you do need to talk to someone because you may need to reduce your interest rates, the monthly payments, you may be even in serious trouble and need to seek out the help of a bankruptcy attorney.

ROMANS: How do we make sure that you find somebody who is credible, a credit counselor who can help you once you have decided that you need to do this and it's not somebody who is going to scam you? Ali was saying that he gets some calls on the radio show from people who say people have offered -- they think they are being scammed

VELSHI: How do you know whether it's honest and what should it cost you?

MARK: Well, I would say the first thing you want to do is go to your tried and true nonprofit credit counseling agency, there is generally a CCCS in every city. You can find an agency locator at What you're looking for is this. Find a credit counselor that is accredited by Counsel of Accreditation, you are looking for somebody that is certified, their counselors are trained. Ideally college educated. You want to make sure that counseling should generally be free all of our budget credit debt, housing counseling is free.

ROMANS: How long should it take? Should I be prepared for three months working with the counselors, six months, how long are you going to work with somebody? How long is it going to take to dig out of that debt? MARK: Well, it really depends on the situation. Many people come to us one time for a budget and credit counseling assessment and then they go off and activate the action plan on their own. So it depends. If there's a lot of hand holding, if they are doing something like debt management or we're negotiating with a lender for a workout option on their delinquent mortgage so it depends how long you're talking about. The initial assessment is generally about 60 to 90 minutes and they are going to look at three things. Your income, your monthly expenses and all of your debts.

VELSHI: Gerri should you be paying in advance for this and how do you determine what is a fair price to pay?

DETWEILER: Generally with credit counseling your initial consultation is going to be free, and then the monthly payments are pretty low. But remember there are also a lot of people who are finding they have too much debt and they can't afford credit counseling so they are turning to debt settlement firms. The problem with some of the debt settlement firms is they charge huge fees up front. We're talking $1200, $3,000 up front, and then they don't necessarily have the incentive to help a consumer resolve or settle their debts on the back end. Those are the outfits you really have to be careful about.

ROMANS: Quickly, both of you can you use online tools? Todd I know you mentioned something for the risk assessment. Gerri is there help people can get for online tools and everything I want to point out to you we are going to put on our Website; we talked a lot about different tools. We're going to put them on the Website. Gerri is there anything you recommend?

DETWEILER: There's great budgeting and debt assessment tools, you can go to, we'll be happy to help you, you can go to places like,, many financial institutions offer some great budgeting tools, Wells Fargo had some good tools for consumers, so absolutely there's great places to get your information together and get on a budget.

VELSHI: Gerri, go to talk to you. Thank you, Gerri Detweiler, is a credit adviser with, Todd Mark is the vice president of Education in the Consumer Credit Counseling Service of Greater Dallas, he's going to stay with us and talk a little about what to do if you think bankruptcy is your only option.

ROMANS: All right. Listen up; this is a list you need to pay attention to. Your cell phone bill, your medical bills, the cost of auto insurance, home insurance, you can lower everyone of those bills today and we're going to show you how to do it.


VELSHI: We'll give you the tools you need to take charge of your money, try and stay out of debt. We're going to give you some steps to reduce your costs, just by asking.

ROMANS: Negotiate your cell phone plan, your credit card interest rate; even your medical bills can all be negotiated. Here to tell us how to do just that is the Jonathan Dahl is the author of "1001 Things They Won't Tell You." An insider's guide to spending, savings, and living wisely. Also editor and chief at "Smart Money" Magazine.

VELSHI: It fills itself with this kind of information.

ROMANS: Yes. Absolutely. So you can negotiate for all of this stuff.

JONATHAN DAHL, AUTHOR, "1001 THINGS THEY WON'T TELL YOU:" Yeah. Let's start off with health. When you go to see your doctor. If you offer to pay in cash or with a check instead of credit card, you're going to save him on the fee he has to pay his credit card company. You can ask for part of that. We noticed particularly with dentists when you ask for the procedure, if you are willing to do it in the middle of the week or in the summer when their business isn't booming they may give you a deal.

ROMANS: Just say hey, can I do this.

VELSHI: Just ask sounds simple. What do you actually do? I have been going to my dentist for a few years and I all of a sudden, I'm out of a job or my income is lower, I just want to save some money, what do I say?

DAHL: It's not as easy as some magazines and books might make it sound. What you want to do is find out who to talk to, it probably won't be the doctor. Usually the doctor's offices have a financial officer that deals with these things or front desk. That's the place to start at first, I think.

VELSHI: You know, I went to my dentist, I made an appointment with my dentist and I said how much the procedure is going to be so I need to know. Can't tell you. I changed dentists as a result.

DAHL: One thing that you might consider is combining procedures. Now I'm not saying if you have your appendix out that you should say oh throw in the tummy tuck at the same time. But having bunion surgery and both feet need it you save a lot of money if you put it together.

ROMANS: Let's talk about car insurance. You can negotiate this. You can take advantage of the discounts that are offered but you can also research their competitors' plans and what you can call them up and say look, I'm driving less, I'm not driving as much as I use to.

DAHL: Yes, if your driving habits changed there are discounts for that. So for example if you move and your commute is less, or let's say you lose your job and you're not driving as much, they have hardship discounts, you just have to have documentation.

VELSHI: It's such a research driven industry. You really can always compare and sometimes you can just call your insurer and say I can get a better deal somewhere else.

DAHL: You know we always say shop around. But this is one industry where you really can. There are good websites that list all of the prices and then of course you can say this is what this guy's offering. ROMANS: You see stories about these kids that pay like $1,000 in texting fees.

VELSHI: Yes. You know what I say to that?


VELSHI: Call somebody once in a while. Stop texting. It's cheaper.

ROMANS: You can test drive other plans. You can also ask for lower fees for texting. All you do is ask.

DAHL: Well people think cell phone companies are a nightmare to deal with. In fact, complaints to the FCC about cell phone companies are down like about 13 percent over the last five years just happen to have that memorized. So they are more negotiable than you might think.

VELSHI: Let's talk a little bit about credit cards. We have been talking a lot about that during the course of this show. People call us and say what can I do. My rate's gone up. Do I have any options because the credit card may not have done as we're clearly learning now they didn't do anything illegal? It was in the fine print somewhere that they can raise your rates for pretty much any reason they want.

DAHL: Well late fees is one thing you can negotiate on because that's not as much a profit center for them. If you're late and they throw on a $20 bill you have better luck going after that first.

ROMANS: I have had luck doing that before. All of a sudden you missed by a day there is a $39 charge. You call, you get transferred. You say look, I'm going to move my business someplace else. And they say OK, we'll take it off this one time.

VELSHI: What about rates?

DAHL: One thing with credit card companies is don't wait for the wolves to come to the door. A lot of people get these enormous bills and they are afraid to pay anything. It is kind of like call them up. Because the times have changed now and they know that. They are under pressure, you're under pressure. There is much more negotiation that can go on.

ROMANS: They want your money. Especially if we're talking about a hardship case. They all in the end want to be paid something because they are paying people, too.

DAHL: A little bit more than nothing.

ROMANS: That is absolutely right.

DAHL: If only the banks thought about that before.

ROMANS: We had a surgeon on here a couple of weeks ago who was telling us about the medical bills. He said believe it or not plastic surgeons are taking a lot of discounts. Because people are putting off their plastic surgeries --

VELSHI: A nose.

ROMANS: I think you're perfect.

VELSHI: Jonathan thank you, a perfect segment.

DAHL: Thank you.

VELSHI: Appreciate it. Jonathan Dahl is the author of "1001 Things They Won't Tell You:" An insiders guide to spending, saving and living wisely.

ROMANS: All right.

VELSHI: Well declaring bankruptcy could be one of the hardest decisions that you have to make. What you absolutely need to know if that decision ever comes your way.


VELSHI: Filing for bankruptcy can ruin your credit. It makes it harder to get a loan, insurance coverage, even a job; your potential employer can see if you filed for bankruptcy.

ROMANS: That is right. So you better be careful before you decide to do it. When is it necessary to file for bankruptcy? Todd Mark is vice president of education for the Consumer Credit Counseling Service of Greater Dallas he is back with us.

You know, when should you do this? This is a really big decision. Once was 20 years ago, 30 years ago you decided to file for personal bankruptcy this was admitting failure. Now for some people the only way that they can restart, reshuffle the deck and start again and try to be a success in their financial life. How and when do you decide to do it?

MARK: First off, that stigma you talked about for many years ago, that's gone. So I don't want people to be fearing that. The consumer protection of bankruptcy is very important. And today at CCCS of Greater Dallas we're seeing a severity of crises greater than we've ever seen. So when people come to us with debt three times their yearly income, it's obvious that getting help from a debt management or even a debt settlement, that's not going to help them. They are going to need to seek legal options. When people are worried about the loss of their home they can't worry about their credit cards, they can't worry about their unsecured debt so they need to focus on their priorities. Sometimes bankruptcy is part of that solution.

VELSHI: Tell us what the process means, because a lot of people think it means you don't have to pay anything anymore. But that's changed recently.

MARK: Yeah. In 2005, the Bankruptcy Reform Act changed things but I don't want to scare people off and think they can't file chapter 7 or chapter 13. Absolutely it is a right, it's a good and important consumer protection and more people are filing than ever before. Right now in response to high unemployment and the housing crises.

VELSHI: But how would you characterize it? What actually happens? What is different if I file for bankruptcy than before I filed for bankruptcy and couldn't make my payments?

MARK: Well the first thing believe it or not is you are required to seek credit counseling from a U.S. Trustee approved Credit Counseling Agency. They do pre-filing counseling and pre-discharge education. And the reason for this was, a, they were trying to root out any abuses so the people that did have means of paying something toward their creditors weren't getting off scott free through a chapter 7. But the real key to the credit counseling and education is it's a teachable moment. We're really here to help consumers emerge stronger as they go through bankruptcy.

And really help them understand the ramifications, the credit impact and how it's going to be living in a world maybe without credit or limited credit after the bankruptcy, living on cash existence and how long it's going to take to get in a home again. Let's face it. Tied to credit issues with the housing crises and we have a lot of people that are filing bankruptcy to stave off foreclosure. They want to know how long is that bankruptcy going to keep me from getting into another maybe more affordable housing option.

ROMANS: In declaring bankruptcy you talked about attending this special approved counseling. Also you need to get a referral from a bankruptcy attorney. This is not critical. Then you have to determine whether you qualify for chapter 7 or chapter 13. Define for us the distinctions between the two.

MARK: Well, once you have gone to a credit counselor you get a certificate, we'll refer not directly to an attorney but to your state or local bar, to the National Association of Consumer Bankruptcy Attorneys, and the attorney themselves will help you go through a median income test. They're going to figure out where you fall within your state median income, if you are above or below that threshold. Then they have a test to see if your judged expenses predict your expenses would be, would allow for you to pay at least $100 a month over a five-year court approved plan toward the creditors. If so they will steer you into chapter 13. If you don't have the means, if you are unemployed and you have a history of little to no income you are probably going to qualify for that chapter 7.

VELSHI: Which means a clean slate.

MARK: A clean slate bankruptcy, versus a chapter 13 which is a reorganization and repayment of some money towards your creditors.

VELSHI: When next is your credit established, how long does it take under both of these?

MARK: Remember bankruptcies are the one thing that can beyond seven years on your credit report; they can last up to ten years. Let's talk the real impact. If you are looking to get a conventional mortgage, generally for a chapter 13, you have to wait at least two years, for a chapter 7, four years. If you are looking at a government program, like FHA, you are probably cutting that in half. One year for chapter 13, two for chapter 7.

Now let's remember that credit cards are a completely different issue. You may have a few cards you keep out of the bankruptcy that you can keep going. Generally people are going to have to rebuild slowly their credit you may be doing that through secured cards or just, good practices of paying off on time and in full your credit. That is one way to rebound and help build your credit after bankruptcy.

VELSHI: Great conversation, Todd. Thanks for being with us. Todd Mark is vice president of Education, Consumer Credit Counseling Service of Greater Dallas.

You know Christine, we had phone calls on the radio show, and we get them from people who are in such distress, such emotional and psychological distress over their financial situation. That's when I always say, that is one test of when bankruptcy might be right for you. You just don't need to have this affect your health and family life.

ROMANS: But there are certain ramifications to doing it. A difficult process and it is a serious, serious matter. So your heart goes out to people who have to make that decision. You hope you can start all over again.

VELSHI: You can rebuild, you can.

ROMANS: Save for a rainy day. Your grandma was right. Now for millions of Americans it is pouring. We are going to tell you where to find an umbrella.


ROMANS: All right. Your financial stability is only as secure as your rainy day fund. How long is yours, three months, six months?

VELSHI: Six. I think it needs to be longer. I truly think in this environment. I don't think for all of life. In an environment it is entirely likely that one could lose their job or something could happen I think you have to be more secure.

ROMANS: I had a good rainy day fund only because I was saving to buy a house. So then I was too nervous about having that money where it could get hit and so that turned out to be wise. There are a lot of people who were using their money in the markets, using their money to make money. Who didn't keep money set aside and now they are in a little bit of trouble. We're talking how long your emergency fund should be, save for a rainy day fund?

VELSHI: The question a lot of people ask us is how do you even start? There are some ways you can start building your emergency fund even if you are on a very, very tight budget. We were talking a little about this earlier. Lets bring back Ryan Mack he is the president of Optimum Capital Management, and Louis Barajas, he is a personal wealth adviser.

Let's start with you Ryan, what do you tell people? If they don't have an emergency fund, you and Louis both made the point earlier, that it's psychologically advantageous even if it is not big, even if it means not paying off some of your debt some where else. You think an absolute necessity?

MACK: Well definitely the emergency fund is one of the first things you should strive for. I remember from Detroit, when the teachers went on strike, after three days there were lines around the corner, because most of the teachers didn't have capital to last longer than three days, because they didn't have an emergency fund.

You have a leaky roof, your car breaks down. Driving around here in New York with all these potholes. We always have to purchase new tires on our cars. We have to have an emergency fund to make sure we have capital to last through these rainy days. The biggest thing about the emergency fund is making sure you have that capital so you don't have to disturb your investment account. End of the day the investment account should remain stable. You don't want to have to start tapping into your investment account and taking out funds that should be invested just because you might have got laid off from your job.

VELSHI: Paying a penalty on and things like that.

All right. Louis, tell us how much should it be? Should it be a percentage of our income? What is the best way to save it so that you don't actually start tapping into it?

ROMANS: I hear three months, six months, people now saying eight months. Can you put a time frame?

BARAJAS: I agree with all of you. You should put as much money as you possibly can. Because again, this type of economy if you are losing your job. I mean, it might take you nine months to find another job. We had jobs where they were so safe and you think we would never lose a job like teachers. Teachers in California are losing their jobs and they were only saving two months in emergency reserves. Now they're in deep trouble.

Here, I deal with human nature, practicality. You want to make sure that you set it up automatically. Because you want to make sure they are taking money out of your checking and putting into your savings account. Money in your job, putting it into some kind of savings account through work. Ideally it should be saved in the bank. Ideally you should save 10 percent. But that's ideally. Human nature says, you know what put as much as you can. I always said never put it underneath the mattress. These days when nobody is saving. I don't care if it goes in the mattress, or a coffee can. It doesn't really matter.

VELSHI: Less accessible the better.

BARAJAS: Absolutely.

VELSHI: Ryan, 3 percent is what we as a nation are saving right now at the height of the recession. In 1982 we were saving almost 13 percent of our income. Louis says he would like people to save 10 percent. What is reasonable? MACK: I think 10 percent, at least 10 percent. Go for more than that if possible. This is where the budget comes into play. You really don't know exactly how much you can save until you write down everything and put everything in, up front so you can see how much of a surplus you have to go into saving.

ROMANS: Ryan where can you find the money to save. If you think I just can't. I am strapped. I have got a kid in college. I have the mortgage. I can't save any money. You say there are ways you can find the money by budgeting to save.

MACK: I always say it is not necessarily being able to save but having the lack of vision that says what you can save with. When you find that vision to save maybe I can cutback on the shopping and going out eating as much, and having, maybe cutting my own hair every once in a while for those college students out there. Maybe trying to shop less frequently. You know just packing your bag lunch can save you as much as $100 a week. We don't know how much we are spending with these $10 lunches we are purchasing every day.

Sometimes coming home from work, its 5:00. Don't have to pick the kids up till 6:00; you are looking bored, what do people like to do? Let's go shopping. All those things that we do we just have to just tone down and make sure that we are spending exactly what we have and journaling what we have.

ROMANS: Ali, the money you save from your hair where does that go?

VELSHI: I do that quite often. I do my own hair. Some times I go to a barber. I can do that myself. After the conversation with Rachel Ray, I have been buying groceries a lot more, eating out a lot less. That stuff really does make a difference.

ROMANS: Gentleman lets leave it there. Thank you for fantastic advice. The bottom line I think for everyone here is we all need to save more. We need to save more.

VELSHI: It's possible. That's great. These two guys are both optimistic. They both deal with people who are in tough positions.

ROMANS: All right. Louis Barajas, thank you so much sir for joining us today. Ryan Mack, Optimum Capital Management, thank you much, gentlemen.

VELSHI: All right. Thank you all for joining us for this special edition of YOUR MONEY, you can follow us on facebook and twitter. I am at Alivelshi and Christine is at Christineromans.

ROMANS: And make sure you join us every week for YOUR MONEY, Saturdays at 1:00 pm Eastern, Sundays at 3:00. You can log on to, anytime, anywhere. Have a great weekend, everybody.