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American Morning

How to Deal With Credit and Debt in a Slow Economy

Aired August 21, 2001 - 10:40   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.
LEON HARRIS, CNN ANCHOR: Members of the Federal Reserve Board are putting their mouths where your money is. They're meeting this hour behind closed doors. When they emerge less than four hours from now, they are expected to announce a cut of at least a quarter-percent in the short-term interest rates. We are watching that.

For a closer look at the Feds' maneuvers, and the bottom line to your finances this morning, let's turn to our guest, Beth Kobliner. She's the author of "Get A Financial Life." and an often guest here on CNN LIVE THIS MORNING.

Good to see you again, Beth. How are you?

BETH KOBLINER, AUTHOR, "GET A FINANCIAL LIFE": I am great. Good to see you.

HARRIS: Well, the questions that we've been posing to people this morning who sent in some e-mails, and we're going to get to in a second, is about how you can save money in this particular climate right now.

We just heard the president talk about how the growth in the economy has only been around one percent or so. That's got to make it real tough for people to save money right now.

KOBLINER: I think it really is tough for people, and I think people are overwhelmed by their debt loads. As we know, two-thirds of the economy has really been fueled by consumer spending. So, people are spending a lot, they are getting deep into debt, and a lot of the tax cuts that the president has talked about, only -- as he talked about, are only good if you actually have the money to save.

So, I think people are kind of confused, how am I going to save if I don't feel like I am making enough?

HARRIS: You know, and the tough thing is here we're talking about trying to encourage people, or giving them tips on how to save when we hear, or will probably hear in a few minutes, about how the economy needs them to get out and spend more.

KOBLINER: It's ironic, you are absolutely right. On the one hand, I think that the smart, prudent thing for people to do is start reigning in those debts, paying off of those debts and starting to save. Yet, with the tax rebate, people are -- the government is trying to encourage people to spend that to get the economy going.

So I am all for the individual, and I'm saying you should try to save that money and pay off your debts.

HARRIS: A classic case of some of these mixed messages in the media...

KOBLINER: That's right.

HARRIS: ... that I get so much mail and phone calls about.

All right, let get right to the e-mails now.

KOBLINER: OK.

HARRIS: Let's see, who's the first one we've got up here? This one is coming in from Kevin Waldon in Houston, Texas:

How can a person who makes $23 thousand a year save money and invest for the future, still keeping in mind everyday living such as a house, car, insurance. How much can I invest? Can you give some advice?

KOBLINER: I think Kevin hits it on the head right here with this question. How do you save if you're only making $23 thousand? Not many tax cuts are going to help Kevin in his situation.

But what Kevin can do, first off, is I would say: Focus in on paying any debt he has. Paying off the debt that is charging the rate of, say, 15 percent, which is now about the national average, is the equivalent of earning 15 percent on your money, guaranteed after taxes. So, even though you might feel like you are wasting money by paying off debt, that's actually a very smart savings move.

Also, I would if Kevin has a 401(k) plan at work, and if there's any matching, even if he can only put in 300, $200, your company may put in the same amount, and that's the immediate 50 percent, or 100 percent return on your money. So, there are small ways that even somebody who makes $23 thousand can start to save.

HARRIS: OK, let's get to the next one here. Let's see, this one is from Gina Devita:

What is the best way, with the least risk, to invest one thousand dollars in today's economy? This can't be considered a long-term investment. We get this from Philadelphia.

Now, what's your advice?

KOBLINER: Well, I like the way Gina talks about least risk. People are really, very scared of the stock market right now. The last couple of years have been a rocky ride.

I like something called iBonds. They are old-fashioned savings bonds with a twist. They adjust for inflation. They have great tax breaks, they are free from state and local tax. And also, they grow tax deferred.

HARRIS: What kind of rates are they at right now, though?

KOBLINER: Excuse me?

HARRIS: What kind of rates are they at, though?

KOBLINER: They are 5.9 percent, which is actually a lot more attractive than a bank savings account, and certainly your checking account. And they are risk free. So, I think iBonds are a terrific way.

There's a government web site: Savingsbond.gov, that's definitely worth checking out.

HARRIS: Savingsbond.gov. It's got to be better than, I think, these NASDAQ funds that I was once in.

KOBLINER: At least for now.

HARRIS: Yes.

KOBLINER: That's a super-safe place to put your money.

HARRIS: OK, good deal. Let's get to the next one here. This is from Sean Pesso-Szefler:

We are a newly wed couple with no credit at all. Not bad credit, just no credit. What's the best and fastest way to establish a good line of credit?

KOBLINER: You know, Sean's speaking about a problem that a lot of Americans don't have. Most people are bombarded by credit card offers, but it sounds like he hasn't really gotten one because he has not established credit.

My advice to him and his new bride is to start by getting a secured credit card, which is essentially a credit card that has a bank account attached to it. You give the credit card, say, $500, and only allow to spend up to $500, that's your limit. You have to be careful and shop around, because sometimes these secured cards have high fees and high interest rates.

But my main advice to them is to make sure to pay off that debt from month to month. The fact that they don't have bad credit makes them in great shape compared to many Americans. And I would really stress to them they want to pay off that debt every month. Use it as a convenience and not as a loan, because credit, as we all know, credit card debt can get really problematic for people in their finances.

HARRIS: You got it. I hope you were listening, Sean, because she is right about that. Beth, I know quite a few people have done exactly that with those secured cards. They make a big difference.

KOBLINER: It makes a big difference, and it's a great way to start to get a good credit rating.

HARRIS: Yes. Beth Kobliner, thanks so much. That's all the time we've got for this morning. We had some breaking news to deal with. We thank you for coming in once again, we'll talk with you later.

KOBLINER: My pleasure.

HARRIS: Now, if you've got some more questions about Beth -- for Beth, rather, about saving, you can log onto our web site. At 11:00 a.m. Eastern, Beth is going to be participating in a live chat. That's at CNN.com.

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