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CNN Live Saturday

Interview With Vera Gibbons

Aired January 05, 2002 - 15:17   ET

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

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CATHERINE CALLAWAY, CNN ANCHOR: From Wall Street to Washington, many are anxious about the economy. So joining us now with some money tips is Vera Gibbons. She's a staff writer from "Smart Money" magazine; she's joining us from New York.

Thanks for being with us today.

VERA GIBBONS, "SMART MONEY" MAGAZINE: Hi, Catherine; thank you for having me.

CALLAWAY: Well, we just said 5.8 percent unemployment. It doesn't appear the economy is on the upswing yet. So let's take it from that angle and say: What we can do right now to prepare for a bleak future of the economy right now? Even, maybe, if you think that you possibly could be laid off, what are some quick tips that people should be doing to prepare?

GIBBONS: Well, I think everyone should have some sort of emergency fund set up that's got at least two to three months worth of living expenses if at all possible. I think people should also work toward consolidating their debt. You know, pay off those credit cards that have the high interest rates first, work your way down to the low-rate cards; or better yesterday, you know, cut the credit cards up altogether and pay cash for whatever you need, because you don't want to get into any deeper debt, certainly if you're potentially worried about losing your job.

CALLAWAY: If you really think that it is, indeed, possible that you could lose your job, what about possibly opening a home equity plan? What are some of the benefits of doing that?

GIBBONS: Well, that's certainly better than, say, charging a lot of money on your credit card or borrowing on your credit card, when rates there are 17 or 18 percent, for example. You could certainly borrow from -- you know, take out a home equity loan. Rates there are about 7 percent, 8 percent. And, of course, you can deduct the interest on that loan.

So that is an option for some people, but it's not the best option if you think the job is on the line because, essentially, you're putting up your house as collateral. But it is one option. It's certainly better than digging yourself deeper by charging up more on your credit card when you're got that 18 percent APR.

CALLAWAY: But you can't get a loan like that if you lose your job, so that's not...

GIBBONS: Yes, you can't. You can't, right.

CALLAWAY: You've got do that ahead of time, right.

All right, what about going to a financial planner? This is a great time to think about that, with the economy the way it is. You certainly don't want to get into your 401(k) -- you want to leave that alone. I hope everyone in knows that. So...

GIBBONS: Well, you know, funny enough, people do dip that it. It's one of the worst things you can do. You shouldn't do that until you're, you know, over that 59 1/2-year mark because there are so many penalties and burdens associated with doing so.

You've got that 10 percent penalty. You know, you've got federal tax of 27 percent in some places. You've got state taxes of like 5 or 10 percent in some area. So if you take $10,000 out of your 401(k) account, for example, $5,000 of that could potentially go toward penalties and fees. So it's one of the worst things you can do. But it is tempting for a lot of people because they are struggling and they're desperate for money. So a lot of people end up dipping into their retirement money, which is not recommended.

CALLAWAY: So you go to a financial planner and you find out some other recommendations. But I have to tell you, it's confusing and overwhelming when you're trying to find a financial planner who doesn't have another agenda.

GIBBONS: Yes, exactly. A lot of these financial planners do get commissions, they do get kickbacks. So if they're trying to sell you specific things like mutual funds, variable annuities and other stuff that you don't necessarily want, chances are they are getting commissions.

So you're better off going with what's called a fee-only financial planner. These guys get a flat fee based on how many time they spend with you. They don't get kickbacks, they don't get commissions, so they've got your interests first and not theirs. But unfortunately a lot of financial planners do get commissions.

CALLAWAY: Yes, but you can ask, and if it says fee-only, you know that's a go. But how do you find one and, you know, are they certified? Can you find one that's certified? It's tempting to just walk into your bank and say, help me; but is that really what you should be doing?

GIBBONS: Well, you know, essentially anyone can call themselves a financial planner. So what you've got are bank managers, insurance agents, brokers all calling themselves financial planners. And while some of these people may be qualified to do the job, they aren't necessarily certified.

You know, 10 years ago, 25,000 people were calling themselves financial planners. Today that number is up to 650,000. And of that 650,000, only 38,000 are actually certified. So you should try to find yourself a certified financial planner. And you can do that through the National Association of Personal Financial Advisers, or NAPFA.org, I think is their Web site.

CALLAWAY: All right. Vera Gibbons, thank you so much for giving us some helpful information. And if anyone takes anything from this interview, it's to leave your retirement account alone, right Vera?

GIBBONS: Yes, exactly.

CALLAWAY: All right, thank you very much for joining us.

GIBBONS: Thanks Catherine.

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