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American Morning

Some Financial Tips to Cope in an Unsure Economy

Aired August 03, 2001 - 10:35   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.
LINDA STOUFFER, CNN ANCHOR: We've been talking about the economy all throughout the morning. The current state of economy, a lot of people really have the jitters right about now. This is an especially unsettling time for people who think that they may be joining the numbers of the unemployed in this economy.

So for the latest on what you should do, we want to bring in a financial expert, financial journalist, author and commentator Beth Kobliner.

Thanks so much for being with us today, Beth.

BETH KOBLINER, AUTHOR, "GET A FINANCIAL LIFE": Good to be here.

STOUFFER: We've been gathering e-mail questions to have your take on that in just a minute. But first, I want to ask you, the overall question, if you're one of those people who has a bad feeling in gut right now, you think job security isn't so secure, what's really the most important thing to tackle first?

KOBLINER: I think the first thing you want to do is make sure you have some sort of emergency cushion to fall back on. Ideally, you have three to six months' worth of living expenses in some sort of account like a money market fund or a bank account, and if you don't have that, at the very least, work on paring down your debts, because come that time, if you get the pink slip, you want to make sure you are not also paying high-interest fees and high interest rates on credit card debts. So paring down debt and trying to get an emergency cushion is key.

STOUFFER: As sort of a rule of thumb, any guidance on how much cash you want to on hand just in case?

KOBLINER: Right. Generally speaking, it's three to six months' worth of living expenses, because historically, that's how long it takes to get a job, to get yourself back on your feet. I would try to shoot for the three to six months. It is tough. I think the other important thing is being insured. Health insurance is key, and if you are going to lose your job, make sure you understand what the rules are, the cobra rules that allow you to extend that coverage.

STOUFFER: Good advice, and good to be prepared. Well we have a lot of great questions that been coming in via e-mail. This comes from Jim in Garfield, New Jersey. He writes: "I receive a lot of e- mails from debt relief programs from the nonprofit organizations that say they can cut my monthly bills paid off by two to four years. Do these programs really help in the long run? What other alternatives does a non-home owner have?"

What about it, Beth?

KOBLINER: Well, the key here for Jim and anybody who's looking to reduce their debt is nonprofit. There is a group called the Credit Counseling Service of America. It's a national group, and they have regional offices all over, and those places can be valid. What they do, is they offer to negotiate with your creditors, they'll call the credit card company, and sometimes they are even able to reduce the interest rate on your credit cards. So I highly recommend the not- for-profit groups, but I say definitely steer clear of the for-profit groups, the ones that say they can clean up credit record in five seconds. There are signs all over advertising them. Magazines have ads, they try to bombard the credit card companies and the credit reporting agencies and try to get your credit report fixed, but often that doesn't help, and you end up paying lots of money.

STOUFFER: May be too good to be true.

Well another e-mail question we have for you tonight comes from Dan in Michigan. And here's what he said: "Are there any legitimate consumer credit counseling services out there? I have heard a few horror stories, and I am afraid to try them."

What do you think about that, Beth?

KOBLINER: Exactly. Same point we were making before. The Consumer Credit Counseling Service -- they have a Web site actually definitely worth looking into, because they can help you get rid of your debts very quickly.

STOUFFER: OK, we want to move to another question.

This is Dale Smith. He writes: "We have $18,000 in a savings account that pays very little interest. Where would be a safe place to put this money that would realize the highest interest rate?"

KOBLINER: I'm really glad Dale asked this question, because a lot of people have money sitting in money market fund or a bank account that is only paying you 2 percent. Remember when the Federal Reserve lowered interest rates, that is good for your loans, but bad for your savings. My favorite investment right now is something called an I-bond. It's an inflation-protected bond. There's a government Web site that offers. It's www.savingsbonds.gov. They're paying close to 6 percent right now. They're tax deferred, fee from state and local tax, and they're a terrific way to save for short-term goals. Ideally, you keep money in there for five years in order to avoid penalties. As long as you keep it in for six months, it is super investment and it's super safe, and I highly recommend I-bonds.

STOUFFER: And every six months can help.

Now our next question comes from someone who is not talking about saving money, but talking paying money. Paul in Alexandria, Virginia writes: "I'm drowning in credit cared debt. The credit card companies have made it very difficult for me to reduce my balances, because of the over-the-limit fees and jacked up interest rats. Are there any strategies that you can suggest to help solve his problem."

And, Beth, I'm guessing that he's probably not alone. What's your advice?

KOBLINER: Absolutely. Paul is among the millions of Americans who are overwhelmed by debt. The one thing keeping the economy somewhat buoyant has been consumer spending, and the way people are doing is with their credit card. What I suggest he does is try to find a low interest rate credit card, and transfer his debts to his low card. Sounds like he's trying with the current company to get the rate lowered. If that doesn't work try something like cardweb.com or bankrate.com. Two sites that list low-rate credit cards. As long as you have a good credit report, you should be paying less than 10 percent on credit card. And ideally pay off the debt as quickly as possible.

STOUFFER: Be disciplined, don't add to the debt. Beth Kobliner, author of "Get a Financial Life." Thanks for advice today.

KOBLINER: My pleasure.

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